(This essay is from the introduction to On Lisp.)
It's a long-standing principle of programming style that the functional
elements of a program should not be too large. If some component of a
program grows beyond the stage where it's readily comprehensible,
it becomes a mass of complexity which conceals errors as easily
as a big city conceals fugitives. Such software will be
hard to read, hard to test, and hard to debug.
In accordance with this principle, a large program must be divided
into pieces, and the larger the program, the more it must be divided.
How do you divide a program? The traditional approach is
called top-down design: you say "the purpose of the
program is to do these seven things, so I divide it into seven major
subroutines. The first subroutine has to do these four things, so
it in turn will have four of its own subroutines," and so on.
This process continues until the whole program has the right level
of granularity-- each part large enough to do something substantial,
but small enough to be understood as a single unit.
Experienced Lisp programmers divide up their programs differently.
As well as top-down design, they follow a principle which
could be called bottom-up design-- changing the language
to suit the problem.
In Lisp, you don't just write your program down toward the language,
you also build the language up toward your program. As you're
writing a program you may think "I wish Lisp had such-and-such an
operator." So you go and write it. Afterward
you realize that using the new operator would simplify the design
of another part of the program, and so on.
Language and program evolve together.
Like the border between two warring states,
the boundary between language and program is drawn and redrawn,
until eventually it comes to rest along the mountains and rivers,
the natural frontiers of your problem.
In the end your program will look as if the language had been
designed for it.
And when language and
program fit one another well, you end up with code which is
clear, small, and efficient.
In typical code, once you abstract out the parts which are
merely bookkeeping, what's left is much shorter;
the higher you build up the language, the less distance you
will have to travel from the top down to it.
This brings several advantages:
Bottom-up design is possible to a certain degree in languages
other than Lisp. Whenever you see library functions,
bottom-up design is happening. However, Lisp gives you much broader
powers in this department, and augmenting the language plays a
proportionately larger role in Lisp style-- so much so that
Lisp is not just a different language, but a whole different way
of programming.
It's true that this style of development is better suited to
programs which can be written by small groups. However, at the
same time, it extends the limits of what can be done by a small
group. In The Mythical Man-Month,
Frederick Brooks
proposed that the productivity of a group of programmers
does not grow linearly with its size. As the size of the
group increases, the productivity of individual programmers
goes down. The experience of Lisp programming
suggests a more cheerful way
to phrase this law: as the size of the group decreases, the
productivity of individual programmers goes up.
A small group wins, relatively speaking, simply because it's
smaller. When a small group also takes advantage of the
techniques that Lisp makes possible, it can
win outright.
New: Download On Lisp for Free.
After a link to
Beating the Averages was posted on slashdot,
some readers wanted to hear in more detail
about the specific technical advantages we got from using
Lisp in Viaweb. For those who are interested,
here are some excerpts from a talk I gave in April 2001 at
BBN Labs in Cambridge, MA.
April 2001, rev. April 2003
(This article is derived from a talk given at the 2001 Franz
Developer Symposium.)
In the summer of 1995, my friend Robert Morris and I
started a startup called
Viaweb.
Our plan was to write
software that would let end users build online stores.
What was novel about this software, at the time, was
that it ran on our server, using ordinary Web pages
as the interface.
A lot of people could have been having this idea at the
same time, of course, but as far as I know, Viaweb was
the first Web-based application. It seemed such
a novel idea to us that we named the company after it:
Viaweb, because our software worked via the Web,
instead of running on your desktop computer.
Another unusual thing about this software was that it
was written primarily in a programming language called
Lisp. It was one of the first big end-user
applications to be written in Lisp, which up till then
had been used mostly in universities and research labs. [1]
The Secret Weapon
Eric Raymond has written an essay called "How to Become a Hacker,"
and in it, among other things, he tells would-be hackers what
languages they should learn. He suggests starting with Python and
Java, because they are easy to learn. The serious hacker will also
want to learn C, in order to hack Unix, and Perl for system
administration and cgi scripts. Finally, the truly serious hacker
should consider learning Lisp:
Lisp is worth learning for the profound enlightenment experience you will have when you finally get it; that experience will make you a better programmer for the rest of your days, even if you never actually use Lisp itself a lot.This is the same argument you tend to hear for learning Latin. It won't get you a job, except perhaps as a classics professor, but it will improve your mind, and make you a better writer in languages you do want to use, like English.
Lisp is worth learning for the profound enlightenment experience you will have when you finally get it; that experience will make you a better programmer for the rest of your days, even if you never actually use Lisp itself a lot.If I didn't know Lisp, reading this would set me asking questions. A language that would make me a better programmer, if it means anything at all, means a language that would be better for programming. And that is in fact the implication of what Eric is saying.
Gary and I ordered a large pizza and found an open booth. The chief lit a cigarette. "Look at those goddamn fleas, jabbering about some disease they'll see once in their lifetimes. That's the trouble with fleas, they only like the bizarre stuff. They hate their bread and butter cases. That's the difference between us and the fucking fleas. See, we love big juicy lumbar disc herniations, but they hate hypertension...."It's hard to think of a lumbar disc herniation as juicy (except literally). And yet I think I know what they mean. I've often had a juicy bug to track down. Someone who's not a programmer would find it hard to imagine that there could be pleasure in a bug. Surely it's better if everything just works. In one way, it is. And yet there is undeniably a grim satisfaction in hunting down certain sorts of bugs.
(These are some notes I made
for a panel discussion on programming language design
at MIT on May 10, 2001.)![]()
1. Programming Languages Are for People.
Programming languages
are how people talk to computers. The computer would be just as
happy speaking any language that was unambiguous. The reason we
have high level languages is because people can't deal with
machine language. The point of programming
languages is to prevent our poor frail human brains from being
overwhelmed by a mass of detail.
Architects know that some kinds of design problems are more personal
than others. One of the cleanest, most abstract design problems
is designing bridges. There your job is largely a matter of spanning
a given distance with the least material. The other end of the
spectrum is designing chairs. Chair designers have to spend their
time thinking about human butts.
Software varies in the same way. Designing algorithms for routing
data through a network is a nice, abstract problem, like designing
bridges. Whereas designing programming languages is like designing
chairs: it's all about dealing with human weaknesses.
Most of us hate to acknowledge this. Designing systems of great
mathematical elegance sounds a lot more appealing to most of us
than pandering to human weaknesses. And there is a role for mathematical
elegance: some kinds of elegance make programs easier to understand.
But elegance is not an end in itself.
And when I say languages have to be designed to suit human weaknesses,
I don't mean that languages have to be designed for bad programmers.
In fact I think you ought to design for the
best programmers, but
even the best programmers have limitations. I don't think anyone
would like programming in a language where all the variables were
the letter x with integer subscripts.
2. Design for Yourself and Your Friends.
If you look at the history of programming languages, a lot of the best
ones were languages designed for their own authors to use, and a
lot of the worst ones were designed for other people to use.
When languages are designed for other people, it's always a specific
group of other people: people not as smart as the language designer.
So you get a language that talks down to you. Cobol is the most
extreme case, but a lot of languages are pervaded by this spirit.
It has nothing to do with how abstract the language is. C is pretty
low-level, but it was designed for its authors to use, and that's
why hackers like it.
The argument for designing languages for bad programmers is that
there are more bad programmers than good programmers. That may be
so. But those few good programmers write a disproportionately
large percentage of the software.
I'm interested in the question, how do you design a language that
the very best hackers will like? I happen to think this is
identical to the question, how do you design a good programming
language?, but even if it isn't, it is at least an interesting
question.
3. Give the Programmer as Much Control as Possible.
Many languages
(especially the ones designed for other people) have the attitude
of a governess: they try to prevent you from
doing things that they think aren't good for you. I like the
opposite approach: give the programmer as much
control as you can.
When I first learned Lisp, what I liked most about it was
that it considered me an equal partner. In the other languages
I had learned up till then, there was the language and there was my
program, written in the language, and the two were very separate.
But in Lisp the functions and macros I wrote were just like those
that made up the language itself. I could rewrite the language
if I wanted. It had the same appeal as open-source software.
4. Aim for Brevity.
Brevity is underestimated and even scorned.
But if you look into the hearts of hackers, you'll see that they
really love it. How many times have you heard hackers speak fondly
of how in, say, APL, they could do amazing things with just a couple
lines of code? I think anything that really smart people really
love is worth paying attention to.
I think almost anything
you can do to make programs shorter is good. There should be lots
of library functions; anything that can be implicit should be;
the syntax should be terse to a fault; even the names of things
should be short.
And it's not only programs that should be short. The manual should
be thin as well. A good part of manuals is taken up with clarifications
and reservations and warnings and special cases. If you force
yourself to shorten the manual, in the best case you do it by fixing
the things in the language that required so much explanation.
5. Admit What Hacking Is.
A lot of people wish that hacking was
mathematics, or at least something like a natural science. I think
hacking is more like architecture. Architecture is
related to physics, in the sense that architects have to design
buildings that don't fall down, but the actual goal of architects
is to make great buildings, not to make discoveries about statics.
What hackers like to do is make great programs.
And I think, at least in our own minds, we have to remember that it's
an admirable thing to write great programs, even when this work
doesn't translate easily into the conventional intellectual
currency of research papers. Intellectually, it is just as
worthwhile to design a language programmers will love as it is to design a
horrible one that embodies some idea you can publish a paper
about.![]()
1. How to Organize Big Libraries?
Libraries are becoming an
increasingly important component of programming languages. They're
also getting bigger, and this can be dangerous. If it takes longer
to find the library function that will do what you want than it
would take to write it yourself, then all that code is doing nothing
but make your manual thick. (The Symbolics manuals were a case in
point.) So I think we will have to work on ways to organize
libraries. The ideal would be to design them so that the programmer
could guess what library call would do the right thing.
2. Are People Really Scared of Prefix Syntax?
This is an open
problem in the sense that I have wondered about it for years and
still don't know the answer. Prefix syntax seems perfectly natural
to me, except possibly for math. But it could be that a lot of
Lisp's unpopularity is simply due to having an unfamiliar syntax.
Whether to do anything about it, if it is true, is another question.
3. What Do You Need for Server-Based Software?
I think a lot of the most exciting new applications that get written
in the next twenty years will be Web-based applications, meaning
programs that sit on the server and talk to you through a Web
browser. And to write these kinds of programs we may need some
new things.
One thing we'll need is support for the new way that server-based
apps get released. Instead of having one or two big releases a
year, like desktop software, server-based apps get released as a
series of small changes. You may have as many as five or ten
releases a day. And as a rule everyone will always use the latest
version.
You know how you can design programs to be debuggable?
Well, server-based software likewise has to be designed to be
changeable. You have to be able to change it easily, or at least
to know what is a small change and what is a momentous one.
Another thing that might turn out to be useful for server based
software, surprisingly, is continuations. In Web-based software
you can use something like continuation-passing style to get the
effect of subroutines in the inherently
stateless world of a Web
session. Maybe it would be worthwhile having actual continuations,
if it was not too expensive.
4. What New Abstractions Are Left to Discover?
I'm not sure how
reasonable a hope this is, but one thing I would really love to
do, personally, is discover a new abstraction-- something that would
make as much of a difference as having first class functions or
recursion or even keyword parameters. This may be an impossible
dream. These things don't get discovered that often. But I am always
looking.![]()
1. You Can Use Whatever Language You Want.
Writing application
programs used to mean writing desktop software. And in desktop
software there is a big bias toward writing the application in the
same language as the operating system. And so ten years ago,
writing software pretty much meant writing software in C.
Eventually a tradition evolved:
application programs must not be written in unusual languages.
And this tradition had so long to develop that nontechnical people
like managers and venture capitalists also learned it.
Server-based software blows away this whole model. With server-based
software you can use any language you want. Almost nobody understands
this yet (especially not managers and venture capitalists).
A few hackers understand it, and that's why we even hear
about new, indy languages like Perl and Python. We're not hearing
about Perl and Python because people are using them to write Windows
apps.
What this means for us, as people interested in designing programming
languages, is that there is now potentially an actual audience for
our work.
2. Speed Comes from Profilers.
Language designers, or at least
language implementors, like to write compilers that generate fast
code. But I don't think this is what makes languages fast for users.
Knuth pointed out long ago that speed only matters in a few critical
bottlenecks. And anyone who's tried it knows that you can't guess
where these bottlenecks are. Profilers are the answer.
Language designers are solving the wrong problem. Users don't need
benchmarks to run fast. What they need is a language that can show
them what parts of their own programs need to be rewritten. That's
where speed comes from in practice. So maybe it would be a net
win if language implementors took half the time they would
have spent doing compiler optimizations and spent it writing a
good profiler instead.
3. You Need an Application to Drive the Design of a Language.
This may not be an absolute rule, but it seems like the best languages
all evolved together with some application they were being used to
write. C was written by people who needed it for systems programming.
Lisp was developed partly to do symbolic differentiation, and
McCarthy was so eager to get started that he was writing differentiation
programs even in the first paper on Lisp, in 1960.
It's especially good if your application solves some new problem.
That will tend to drive your language to have new features that
programmers need. I personally am interested in writing
a language that will be good for writing server-based applications.
[During the panel, Guy Steele also made this point, with the
additional suggestion that the application should not consist of
writing the compiler for your language, unless your language
happens to be intended for writing compilers.]
4. A Language Has to Be Good for Writing Throwaway Programs.
You know what a throwaway program is: something you write quickly for
some limited task. I think if you looked around you'd find that
a lot of big, serious programs started as throwaway programs. I
would not be surprised if most programs started as throwaway
programs. And so if you want to make a language that's good for
writing software in general, it has to be good for writing throwaway
programs, because that is the larval stage of most software.
5. Syntax Is Connected to Semantics.
It's traditional to think of
syntax and semantics as being completely separate. This will
sound shocking, but it may be that they aren't.
I think that what you want in your language may be related
to how you express it.
I was talking recently to Robert Morris, and he pointed out that
operator overloading is a bigger win in languages with infix
syntax. In a language with prefix syntax, any function you define
is effectively an operator. If you want to define a plus for a
new type of number you've made up, you can just define a new function
to add them. If you do that in a language with infix syntax,
there's a big difference in appearance between the use of an
overloaded operator and a function call.![]()
1. New Programming Languages.
Back in the 1970s
it was fashionable to design new programming languages. Recently
it hasn't been. But I think server-based software will make new
languages fashionable again. With server-based software, you can
use any language you want, so if someone does design a language that
actually seems better than others that are available, there will be
people who take a risk and use it.
2. Time-Sharing.
Richard Kelsey gave this as an idea whose time
has come again in the last panel, and I completely agree with him.
My guess (and Microsoft's guess, it seems) is that much computing
will move from the desktop onto remote servers. In other words,
time-sharing is back. And I think there will need to be support
for it at the language level. For example, I know that Richard
and Jonathan Rees have done a lot of work implementing process
scheduling within Scheme 48.
3. Efficiency.
Recently it was starting to seem that computers
were finally fast enough. More and more we were starting to hear
about byte code, which implies to me at least that we feel we have
cycles to spare. But I don't think we will, with server-based
software. Someone is going to have to pay for the servers that
the software runs on, and the number of users they can support per
machine will be the divisor of their capital cost.
So I think efficiency will matter, at least in computational
bottlenecks. It will be especially important to do i/o fast,
because server-based applications do a lot of i/o.
It may turn out that byte code is not a win, in the end. Sun and
Microsoft seem to be facing off in a kind of a battle of the byte
codes at the moment. But they're doing it because byte code is a
convenient place to insert themselves into the process, not because
byte code is in itself a good idea. It may turn out that this
whole battleground gets bypassed. That would be kind of amusing.![]()
1. Clients.
This is just a guess, but my guess is that
the winning model for most applications will be purely server-based.
Designing software that works on the assumption that everyone will
have your client is like designing a society on the assumption that
everyone will just be honest. It would certainly be convenient, but
you have to assume it will never happen.
I think there will be a proliferation of devices that have some
kind of Web access, and all you'll be able to assume about them is
that they can support simple html and forms. Will you have a
browser on your cell phone? Will there be a phone in your palm
pilot? Will your blackberry get a bigger screen? Will you be able
to browse the Web on your gameboy? Your watch? I don't know.
And I don't have to know if I bet on
everything just being on the server. It's
just so much more robust to have all the
brains on the server.
2. Object-Oriented Programming.
I realize this is a
controversial one, but I don't think object-oriented programming
is such a big deal. I think it is a fine model for certain kinds
of applications that need that specific kind of data structure,
like window systems, simulations, and cad programs. But I don't
see why it ought to be the model for all programming.
I think part of the reason people in big companies like object-oriented
programming is because it yields a lot of what looks like work.
Something that might naturally be represented as, say, a list of
integers, can now be represented as a class with all kinds of
scaffolding and hustle and bustle.
Another attraction of
object-oriented programming is that methods give you some of the
effect of first class functions. But this is old news to Lisp
programmers. When you have actual first class functions, you can
just use them in whatever way is appropriate to the task at hand,
instead of forcing everything into a mold of classes and methods.
What this means for language design, I think, is that you shouldn't
build object-oriented programming in too deeply. Maybe the
answer is to offer more general, underlying stuff, and let people design
whatever object systems they want as libraries.
3. Design by Committee.
Having your language designed by a committee is a big pitfall,
and not just for the reasons everyone knows about. Everyone
knows that committees tend to yield lumpy, inconsistent designs.
But I think a greater danger is that they won't take risks.
When one person is in charge he can take risks
that a committee would never agree on.
Is it necessary to take risks to design a good language though?
Many people might suspect
that language design is something where you should stick fairly
close to the conventional wisdom. I bet this isn't true.
In everything else people do, reward is proportionate to risk.
Why should language design be any different?

(I wrote this article to help myself understand exactly
what McCarthy discovered. You don't need to know this stuff
to program in Lisp, but it should be helpful to
anyone who wants to
understand the essence of Lisp � both in the sense of its
origins and its semantic core. The fact that it has such a core
is one of Lisp's distinguishing features, and the reason why,
unlike other languages, Lisp has dialects.)
In 1960, John
McCarthy published a remarkable paper in
which he did for programming something like what Euclid did for
geometry. He showed how, given a handful of simple
operators and a notation for functions, you can
build a whole programming language.
He called this language Lisp, for "List Processing,"
because one of his key ideas was to use a simple
data structure called a list for both
code and data.
It's worth understanding what McCarthy discovered, not
just as a landmark in the history of computers, but as
a model for what programming is tending to become in
our own time. It seems to me that there have been
two really clean, consistent models of programming so
far: the C model and the Lisp model.
These two seem points of high ground, with swampy lowlands
between them. As computers have grown more powerful,
the new languages being developed have been moving
steadily toward the Lisp model. A popular recipe
for new programming languages in the past 20 years
has been to take the C model of computing and add to
it, piecemeal, parts taken from the Lisp model,
like runtime typing and garbage collection.
In this article I'm going to try to explain in the
simplest possible terms what McCarthy discovered.
The point is not just to learn about an interesting
theoretical result someone figured out forty years ago,
but to show where languages are heading.
The unusual thing about Lisp � in fact, the defining
quality of Lisp � is that it can be written in
itself. To understand what McCarthy meant by this,
we're going to retrace his steps, with his mathematical
notation translated into running Common Lisp code.
(This article came about in response to some questions on
the LL1 mailing list. It is now
incorporated in Revenge of the Nerds.)
When McCarthy designed Lisp in the late 1950s, it was
a radical departure from existing languages,
the most important of which was Fortran.
Lisp embodied nine new ideas:
There is a kind of mania for object-oriented programming at the moment, but
some of the smartest programmers I know are some of the least excited about it.
My own feeling is that object-oriented
programming is a useful technique in some
cases, but it isn't something that has to pervade every program you
write. You should be able to define new types,
but you shouldn't have to express every program as the
definition of new types.
I think there are five reasons people like object-oriented
programming, and three and a half of them are bad:
I personally have never needed object-oriented abstractions.
Common Lisp has an enormously powerful object system and I've
never used it once. I've done a lot of things (e.g. making
hash tables full of closures) that would have required
object-oriented techniques to do in wimpier languages, but
I have never had to use CLOS.
Maybe I'm just stupid, or have worked on some limited subset
of applications. There is a danger in designing a language
based on one's own experience of programming. But it seems
more dangerous to put stuff in that you've never needed
because it's thought to be a good idea.

Kevin Kelleher suggested an interesting way to compare programming
languages: to describe each in terms of the problem it
fixes. The surprising thing is how many, and how well, languages can be
described this way.
Algol: Assembly language is too low-level.
Pascal: Algol doesn't have enough data types.
Modula: Pascal is too wimpy for systems programming.
Simula: Algol isn't good enough at simulations.
Smalltalk: Not everything in Simula is an object.
Fortran: Assembly language is too low-level.
Cobol: Fortran is scary.
PL/1: Fortran doesn't have enough data types.
Ada: Every existing language is missing something.
Basic: Fortran is scary.
APL: Fortran isn't good enough at manipulating arrays.
J: APL requires its own character set.
C: Assembly language is too low-level.
C++: C is too low-level.
Java: C++ is a kludge. And Microsoft is going to crush us.
C#: Java is controlled by Sun.
Lisp: Turing Machines are an awkward way to describe computation.
Scheme: MacLisp is a kludge.
T: Scheme has no libraries.
Common Lisp: There are too many dialects of Lisp.
Dylan: Scheme has no libraries, and Lisp syntax is scary.
Perl: Shell scripts/awk/sed are not enough like programming languages.
Python: Perl is a kludge.
Ruby: Perl is a kludge, and Lisp syntax is scary.
Prolog: Programming is not enough like logic.
Python's goal is regularity and readability, not succinctness.On the face of it, this seems a rather damning thing to claim about a programming language. As far as I can tell, succinctness = power. If so, then substituting, we get
Python's goal is regularity and readability, not power.and this doesn't seem a tradeoff (if it is a tradeoff) that you'd want to make. It's not far from saying that Python's goal is not to be effective as a programming language.
Comparisons between Ericsson-internal development projects indicate similar line/hour productivity, including all phases of software development, rather independently of which language (Erlang, PLEX, C, C++, or Java) was used. What differentiates the different languages then becomes source code volume.The study also deals explictly with a point that was only implicit in Brooks' book (since he measured lines of debugged code): programs written in more powerful languages tend to have fewer bugs. That becomes an end in itself, possibly more important than programmer productivity, in applications like network switches.
total effort = effort per line x number of linesI'm not as sure that readability is directly proportionate to succinctness as I am that power is, but certainly succinctness is a factor (in the mathematical sense; see equation above) in readability. So it may not even be meaningful to say that the goal of a language is readability, not succinctness; it could be like saying the goal was readability, not readability.
May 2002
Another way to show that Lisp was neater than Turing machines was to write a universal Lisp function and show that it is briefer and more comprehensible than the description of a universal Turing machine. This was the Lisp function eval..., which computes the value of a Lisp expression.... Writing eval required inventing a notation representing Lisp functions as Lisp data, and such a notation was devised for the purposes of the paper with no thought that it would be used to express Lisp programs in practice.What happened next was that, some time in late 1958, Steve Russell, one of McCarthy's grad students, looked at this definition of eval and realized that if he translated it into machine language, the result would be a Lisp interpreter.
Steve Russell said, look, why don't I program this eval..., and I said to him, ho, ho, you're confusing theory with practice, this eval is intended for reading, not for computing. But he went ahead and did it. That is, he compiled the eval in my paper into [IBM] 704 machine code, fixing bugs, and then advertised this as a Lisp interpreter, which it certainly was. So at that point Lisp had essentially the form that it has today....Suddenly, in a matter of weeks I think, McCarthy found his theoretical exercise transformed into an actual programming language-- and a more powerful one than he had intended.
Any sufficiently complicated C or Fortran program contains an ad hoc informally-specified bug-ridden slow implementation of half of Common Lisp.If you try to solve a hard problem, the question is not whether you will use a powerful enough language, but whether you will (a) use a powerful language, (b) write a de facto interpreter for one, or (c) yourself become a human compiler for one. We see this already begining to happen in the Python example, where we are in effect simulating the code that a compiler would generate to implement a lexical variable.
August 2002
(This article describes the spam-filtering techniques
used in the spamproof web-based mail reader we
built to exercise Arc. An
improved algorithm is described in Better
Bayesian Filtering.)
I think it's possible to stop spam, and that
content-based filters are the way to do it.
The Achilles heel of the spammers is their message.
They can circumvent any other barrier you set up. They have so far, at
least. But they have to deliver their message, whatever it
is. If we can write software that recognizes their messages,
there is no way they can get around that.
Subject*FREE 0.9999 free!! 0.9999 To*free 0.9998 Subject*free 0.9782 free! 0.9199 Free 0.9198 Url*free 0.9091 FREE 0.8747 From*free 0.7636 free 0.6546In the Plan for Spam filter, all these tokens would have had the same probability, .7602. That filter recognized about 23,000 tokens. The current one recognizes about 187,000.
Subject*Free!!! Subject*free!!! Subject*FREE! Subject*Free! Subject*free! Subject*FREE Subject*Free Subject*free FREE!!! Free!!! free!!! FREE! Free! free! FREE Free freeIf you do this, be sure to consider versions with initial caps as well as all uppercase and all lowercase. Spams tend to have more sentences in imperative mood, and in those the first word is a verb. So verbs with initial caps have higher spam probabilities than they would in all lowercase. In my filter, the spam probability of ``Act'' is 98% and for ``act'' only 62%.


It is a truth universally acknowledged, that a single man in possession of a good fortune must be in want of a wife."It is a truth universally acknowledged?" Long words for the first sentence of a love story.
I suppose I should learn Lisp, but it seems so foreign.Fortunately, I was 19 at the time and not too resistant to learning new things. I was so ignorant that learning almost anything meant learning new things.
Programs should be written for people to read, and only incidentally for machines to execute.You need to have empathy not just for your users, but for your readers. It's in your interest, because you'll be one of them. Many a hacker has written a program only to find on returning to it six months later that he has no idea how it works. I know several people who've sworn off Perl after such experiences. [7]

May 2004
(This essay was originally published in Hackers
& Painters.)
If you wanted to get rich, how would you do it? I think your best
bet would be to start or join a startup. That's been a
reliable way to get rich for hundreds of years. The word "startup"
dates from the 1960s, but what happens in one is
very similar to the venture-backed trading voyages of the
Middle Ages.
Startups usually involve technology, so much so that the phrase
"high-tech startup" is almost redundant. A startup is a small
company that takes on a hard technical problem.
Lots of people get rich knowing nothing more than that.
You don't have to know physics to be a good pitcher. But
I think it could give you an edge to understand the underlying principles.
Why do startups have to be small?
Will a startup inevitably stop being a startup as it
grows larger?
And why do they so often work on
developing new technology? Why are there so many startups
selling new drugs or computer software, and none selling corn oil
or laundry detergent?
The Proposition
Economically, you can think of a startup as a way to
compress your whole working life into a few years. Instead
of working at a low intensity for forty years, you work as
hard as you possibly can for four. This pays especially well
in technology, where you earn a premium for working fast.
Here is a brief sketch of the economic proposition. If you're
a good hacker in your mid twenties, you can
get a job paying about $80,000 per year. So on average
such a hacker must be
able to do at least $80,000 worth of work per year for the
company just to break even. You could probably
work twice as many hours as a corporate employee, and if
you focus you can probably get three times as much done in
an hour.
[1]
You should get another multiple of two, at
least, by eliminating the drag
of the pointy-haired middle
manager who would be your boss in a big company.
Then there is one more multiple: how much smarter are you
than your job description expects you to be?
Suppose another multiple of three. Combine all these multipliers, and I'm
claiming you could be 36 times more
productive than you're expected to be in a random corporate
job.
[2]
If a fairly good hacker is worth $80,000 a year at a
big company, then a smart
hacker working very hard without any corporate
bullshit to slow him down should be able to do work worth about
$3 million a year.
Like all back-of-the-envelope calculations, this one
has a lot of wiggle room. I wouldn't try to
defend the actual numbers. But I stand by the
structure of the calculation. I'm not claiming
the multiplier is precisely 36, but it is certainly more
than 10, and probably rarely as high as 100.
If $3 million a year seems
high, remember that we're talking about the limit case:
the case where you not only have zero leisure time
but indeed work so hard that you endanger your health.
Startups are not magic. They don't change the laws of
wealth creation. They just represent a point at the far end of the curve.
There is a conservation law at work here: if
you want to make a million dollars, you have to endure a
million dollars' worth of pain.
For example, one way to
make a million dollars would be to work for the
Post Office your whole life, and save every penny of your
salary. Imagine the stress of working for the Post
Office for fifty years. In a startup you compress all
this stress into three or four years. You do tend to get a
certain
bulk discount if you buy the economy-size pain,
but you can't evade the fundamental conservation law.
If starting a startup were easy, everyone would do it.
Millions, not Billions
If $3 million a year seems high to some people, it will seem
low to others. Three million?
How do I get to be a billionaire, like Bill Gates?
So let's get Bill Gates out of the way right now. It's not
a good idea to use famous rich people
as examples, because the press only
write about the very richest, and these tend to be outliers.
Bill Gates is a smart, determined, and hardworking man,
but you need more than
that to make as much money as he has. You also need to be
very lucky.
There is a large random
factor in the success of any company. So the guys you end
up reading about in the papers are the ones who are very
smart, totally dedicated, and win the lottery.
Certainly Bill is smart and dedicated, but Microsoft also
happens to have been the beneficiary of one of the most spectacular
blunders in the history of business: the licensing deal for
DOS. No doubt Bill did
everything he could to steer IBM into making that blunder,
and he has done an excellent job of exploiting it, but if
there had been one person with a brain on IBM's side,
Microsoft's future would have been very different.
Microsoft at that stage had little leverage over IBM.
They were effectively a component supplier. If IBM had
required an exclusive license, as they should have, Microsoft
would still have signed the deal. It would still have
meant a lot of money for them, and IBM
could easily have gotten an operating system elsewhere.
Instead IBM ended up using all its power in the market
to give Microsoft control of the PC standard. From
that point, all Microsoft had to do was execute. They
never had to bet the company on a bold decision. All they
had to do was play hardball with licensees and copy more
innovative products reasonably promptly.
If IBM hadn't made this mistake, Microsoft would
still have been a successful company, but it
could not have grown so big so fast.
Bill Gates would be rich, but he'd be somewhere
near the bottom of the Forbes 400 with the other guys his age.
There are a lot of ways to get
rich, and this essay is about only one of them. This
essay is about how to make money by creating wealth and
getting paid for it. There are plenty of other ways to
get money, including chance, speculation, marriage, inheritance,
theft, extortion, fraud, monopoly,
graft, lobbying,
counterfeiting, and prospecting. Most of the greatest fortunes
have probably involved several of these.
The advantage of creating wealth, as a way to get rich,
is not just that it's more legitimate
(many of the other methods are now illegal)
but that it's more
straightforward. You just have to do something people want.
Money Is Not Wealth
If you want to create wealth, it will help to understand what it is.
Wealth is not the same thing as money.
[3]
Wealth is as old as
human history. Far older, in fact; ants have wealth.
Money is a comparatively recent invention.
Wealth is the fundamental thing. Wealth is stuff we want: food,
clothes, houses, cars, gadgets, travel to interesting places,
and so on. You can have wealth without
having money. If you had a magic machine that
could on command make you a car or cook you dinner or do your
laundry, or do anything else you wanted, you wouldn't need money.
Whereas if you were in the middle of Antarctica, where there is
nothing to buy, it wouldn't matter how much money you had.
Wealth is what you want, not money. But if wealth is the important
thing, why does everyone talk about making money? It is
a kind of shorthand: money is a way of moving wealth, and in practice
they are usually interchangeable. But they are not the same thing,
and unless you plan to get rich by counterfeiting, talking about
making money can make it harder to understand how to
make money.
Money is a side effect of specialization.
In a specialized society, most of the
things you need, you can't make for yourself. If you want a potato
or a pencil or a place to live, you have to get it from someone
else.
How do you get the person who grows the potatoes to give you some?
By giving him something he wants in return. But you can't get
very far by trading things directly with the people who
need them. If you make violins, and none of the local
farmers wants one, how will you eat?
The solution societies find, as they get more specialized, is to
make the trade into a two-step process. Instead of trading violins
directly for potatoes, you trade violins for, say, silver,
which you can then trade again for anything else you need. The
intermediate stuff-- the medium of exchange-- can be anything that's
rare and portable. Historically metals have been the most common,
but recently we've been using a medium of exchange, called the dollar,
that doesn't physically exist. It works as a medium of exchange,
however, because its rarity
is guaranteed by the U.S. Government.
The advantage of a medium of exchange is that it makes trade work.
The disadvantage is that it tends to obscure what trade really
means. People think that what a business does is make money.
But money is just the intermediate stage-- just
a shorthand-- for whatever people want.
What most businesses really do is make
wealth. They do something people want.
[4]
The Pie Fallacy
A surprising number of people retain from childhood the idea
that there is a fixed amount of wealth in the world.
There is, in any normal family, a fixed amount of money at
any moment. But that's not the same thing.
When wealth is talked about in this context, it is often
described as a pie. "You can't make the pie larger,"
say politicians.
When you're
talking about the amount of money in one family's bank
account, or the amount available to a government from one
year's tax revenue, this is true.
If one person gets more, someone else has to get less.
I can remember believing, as a child, that if a few
rich people had all the money, it left less for everyone else.
Many people seem to continue to believe something like this
well into adulthood. This fallacy is usually there in the
background when you hear someone talking about how x percent
of the population have y percent of the wealth. If you plan
to start a startup, then whether you realize it or not, you're
planning to disprove the Pie Fallacy.
What leads people astray here is the abstraction of
money. Money is not wealth. It's
just something we use to move wealth around.
So although there may be, in certain specific moments (like
your family, this month) a fixed amount of money available to
trade with other people for things you want,
there is not a fixed amount of wealth in the world.
You can make more wealth. Wealth has been getting created and
destroyed (but on balance, created) for all of human history.
Suppose you own a beat-up old car.
Instead of sitting on your butt next
summer, you could spend the time restoring your car to pristine condition.
In doing so you create wealth. The world is-- and
you specifically are-- one pristine old car the richer. And not
just in some metaphorical way. If you sell your car,
you'll get more for it.
In restoring your old car you have made yourself
richer. You haven't made anyone else poorer. So there is
obviously not a fixed pie. And in fact, when you look at
it this way, you wonder why anyone would think there was.
[5]
Kids know, without knowing they know, that they can create
wealth. If you need to give someone a present and don't
have any money, you make one. But kids are so bad at making
things that they consider home-made presents to be a distinct,
inferior, sort of thing to store-bought ones-- a mere expression
of the proverbial thought that counts.
And indeed, the lumpy ashtrays
we made for our parents did not have much of a resale market.
Craftsmen
The people most likely to grasp that wealth can be
created are the ones who are good at making things, the craftsmen.
Their hand-made objects become store-bought ones.
But with the rise of industrialization there are fewer and
fewer craftsmen. One of the biggest remaining groups is
computer programmers.
A programmer can sit down in front of a computer and
create wealth. A good piece of software is, in itself,
a valuable thing.
There is no manufacturing to confuse the issue. Those
characters you type
are a complete, finished product.
If someone sat down and wrote a web
browser that didn't suck (a fine idea, by the way), the world
would be that much richer.
[5b]
Everyone in a company works together to create
wealth, in the sense of making more things people want.
Many of the employees (e.g. the people in the mailroom or
the personnel department) work at one remove from the
actual making of stuff. Not the programmers. They
literally think the product, one line at a time.
And so it's clearer to programmers that wealth is something
that's made, rather than being distributed, like slices of a
pie, by some imaginary Daddy.
It's also obvious to programmers that there are huge variations
in the rate at which wealth is created. At Viaweb we had one
programmer who was a sort of monster of productivity.
I remember watching what he did one long day and estimating that
he had added several hundred thousand dollars
to the market value of the company.
A great programmer, on a roll, could
create a million dollars worth of wealth in a couple weeks.
A mediocre programmer over the same period will generate zero or
even negative wealth (e.g. by introducing bugs).
This is
why so many of the best programmers are libertarians.
In our world, you sink or swim, and there are no excuses.
When those far removed from the creation of wealth-- undergraduates,
reporters, politicians-- hear
that the richest 5% of the people have
half the total wealth, they tend to think injustice!
An experienced programmer would be more likely to think
is that all? The top 5% of programmers
probably write 99% of the good software.
Wealth can be created without being sold. Scientists, till
recently at least, effectively donated the wealth they
created. We are all richer for knowing about penicillin,
because we're less likely to die from infections. Wealth
is whatever people want, and not dying is certainly something
we want. Hackers often donate their work by
writing open source software that anyone can use for free.
I am much the richer for the operating system
FreeBSD, which I'm running on the computer I'm using now,
and so is Yahoo, which runs it on all their servers.
What a Job Is
In industrialized countries, people belong to one institution or
another at least until their twenties. After all those years you get
used to the idea of belonging to a group of people who all get up
in the morning, go to some set of buildings, and do things that they
do not, ordinarily, enjoy doing. Belonging to such a group becomes
part of your identity: name, age, role, institution.
If you have to introduce yourself, or
someone else describes you, it will be as something like, John
Smith, age 10, a student at such and such elementary school, or
John Smith, age 20, a student at such and such college.
When John Smith finishes school he is expected to get a job. And
what getting a job seems to mean is joining another institution.
Superficially it's a lot like college. You pick the companies you
want to work for and apply to join them. If one likes you, you
become a member of this new group. You get up in the morning and
go to a new set of buildings, and do things that you do not, ordinarily,
enjoy doing. There are a few differences: life is not as much fun,
and you get paid, instead of paying, as you did in college. But
the similarities feel greater than the differences. John Smith is
now John Smith, 22, a software developer at such and such corporation.
In fact John Smith's
life has changed more than he realizes. Socially, a company
looks much like college, but the deeper you go into the
underlying reality, the more different it gets.
What a company does, and has to do if it wants to continue to
exist, is earn money. And the way most companies make money
is by creating wealth. Companies can be so specialized that this
similarity is concealed, but it is not only manufacturing
companies that create wealth. A big component of wealth is
location.
Remember that magic machine that could
make you cars and cook you dinner and so on? It would not be
so useful if it delivered your dinner to a random location
in central Asia.
If wealth means what people want, companies that move
things also create wealth. Ditto for
many other kinds of companies that don't make anything
physical. Nearly all companies exist to do something people
want.
And that's what you do, as well, when you go to work for a company.
But here there is another layer that tends to obscure the underlying
reality. In a company, the work you do is averaged together with
a lot of other people's.
You may not even be aware you're doing something people
want. Your contribution may be indirect. But the company as a
whole must be giving people something they want, or they won't make
any money. And if they are paying you x dollars a year, then on
average you must be contributing at least x dollars a year worth
of work, or the company will be spending more than it makes,
and will go out of business.
Someone graduating from college thinks, and is told, that he needs
to get a job, as if the important thing were becoming a member of
an institution. A more direct way to put it would be: you need to
start doing something people want. You don't
need to
join a company to do that. All a company is is a group of people
working together to do something people want. It's doing something people
want that matters, not joining the group.
[6]
For most people the
best plan probably is to go to work for some existing
company. But it is a good idea to understand what's happening
when you do this. A job means doing something people want,
averaged together with everyone else in that company.
Working Harder
That averaging gets to be a problem.
I think the single biggest problem afflicting large companies is the
difficulty of assigning a value to each person's work.
For the most part they punt. In a
big company you get paid a fairly predictable salary for working
fairly hard. You're expected not to be obviously incompetent or
lazy, but you're not expected to devote your whole life to your
work.
It turns out, though, that there are economies of scale in how much of your
life you devote to your work. In the right kind of business,
someone who really devoted himself to work could generate ten or
even a hundred times as much wealth as an average
employee. A programmer, for example, instead of chugging along
maintaining and updating an existing piece of software, could write
a whole new piece of software, and with it create a new source of
revenue.
Companies are not set up to reward people who want to do this.
You can't go to your boss and say, I'd like to start working ten
times as hard, so will you please pay me ten times as much? For
one thing, the official fiction is that you are already working as
hard as you can. But a more serious problem is that the company
has no way of measuring the value of your work.
Salesmen are an exception. It's easy
to measure how much revenue they generate, and they're
usually paid a percentage of it. If a salesman wants to work harder,
he can just start doing it, and he will automatically
get paid proportionally more.
There is one other job besides sales where big companies can
hire first-rate people: in the top management jobs.
And for the same reason: their performance can
be measured. The top managers are
held responsible for the performance of the entire company.
Because an ordinary employee's performance can't usually
be measured, he is not expected to do
more than put in a solid effort. Whereas top management, like
salespeople, have to actually come up with the numbers.
The CEO of a company that tanks cannot plead that he put in
a solid effort. If the company does badly, he's done badly.
A company that could pay all its employees so straightforwardly
would be enormously successful. Many employees would work harder
if they could get paid for it. More importantly,
such a company would attract people who wanted to work
especially hard.
It would crush its competitors.
Unfortunately, companies can't pay everyone like salesmen. Salesmen
work alone. Most employees' work is tangled together. Suppose
a company makes some kind of consumer gadget. The
engineers build a reliable gadget with all kinds of new features;
the industrial designers design a beautiful case for it; and then
the marketing people convince everyone that
it's something they've got to have. How do you know how much of the
gadget's sales are due to each group's efforts? Or, for that
matter, how much is due to the creators of past gadgets that gave
the company a reputation for quality? There's no way to
untangle all their contributions. Even if you could read the minds
of the consumers, you'd find these factors were all blurred together.
If you want to go faster, it's a problem to have your work
tangled together with a large number of other people's. In a
large group, your performance is not separately measurable-- and
the rest of the group slows you down.
Measurement and Leverage
To get rich you need to get yourself in a situation with two
things, measurement and leverage. You need to be in a
position where your performance can be measured, or there is
no way to get paid more by doing more. And you have to
have leverage, in the sense that the decisions you make have
a big effect.
Measurement alone is not enough. An example of a job with
measurement but not leverage is doing piecework in a
sweatshop. Your performance is measured and you get paid
accordingly, but you have no scope for decisions. The only
decision you get to make is how fast you work, and that
can probably only increase your earnings by a factor
of two or three.
An example of a job with both measurement and leverage would
be lead actor in a movie. Your performance can be measured in the
gross of the movie. And you have leverage in the sense that your
performance can make or break it.
CEOs also have both measurement and leverage. They're measured,
in that the performance of the company is their performance.
And they have leverage in that their decisions
set the whole company moving in one direction or another.
I think everyone who gets rich by their own efforts will be
found to be in a situation with measurement and leverage.
Everyone I can think of does: CEOs, movie stars,
hedge fund managers, professional athletes. A good hint to the
presence of leverage is the possibility of failure.
Upside must be balanced by downside, so if there is
big potential for gain there must also be a terrifying
possibility of loss. CEOs, stars, fund managers, and athletes
all live with the sword hanging over their heads;
the moment they start to suck, they're out. If you're in
a job that feels safe, you are not going to get rich,
because if there is no danger there is almost certainly no leverage.
But you don't have to become a CEO or a movie star to
be in a situation with measurement and leverage. All you
need to do is be part of a small group working on a
hard problem.
Smallness = Measurement
If you can't measure the value of the work done by individual
employees, you can get close. You can measure the value
of the work done by small groups.
One level at which you can accurately measure the revenue
generated by employees is at the level of the whole company.
When the company is small, you are thereby fairly close to
measuring the contributions of individual employees. A viable
startup might only have ten employees, which puts you within a
factor of ten of measuring individual effort.
Starting or joining a startup is thus as close as most
people can get to saying to one's boss, I want to work ten times
as hard, so please pay me ten times as much. There are two
differences: you're not saying it to your boss, but directly to the
customers (for whom your boss is only a proxy after all), and
you're not doing it individually, but along with a small group
of other ambitious people.
It will, ordinarily, be a group. Except in a few unusual kinds
of work, like acting or writing books, you can't be a company
of one person.
And the people you work with had better be good, because it's their work that
yours is going to be averaged with.
A big company is like a giant galley driven by a thousand rowers.
Two things keep the speed of the
galley down. One is that individual rowers don't see any
result from working harder.
The other is that, in a group of a
thousand people, the average rower is likely to be
pretty average.
If you took ten people at random out of the big galley and
put them in a boat by themselves, they could probably go
faster. They would have both carrot and stick to motivate
them. An energetic rower would be encouraged by the thought
that he could have a visible effect on the speed of
the boat. And if someone was lazy, the others would be more likely
to notice and complain.
But the real advantage of the ten-man boat shows when
you take the ten best rowers out of the big galley
and put them in a boat together. They will have all
the extra motivation that comes from being in a small group.
But more importantly, by selecting that small a group
you can get the best rowers. Each one will be in
the top 1%. It's a much better deal for them to average
their work together with a small group of their peers than to
average it with everyone.
That's the real point of startups. Ideally, you are getting
together with a group of other people who also want to work
a lot harder, and get paid a lot more, than they would in
a big company. And because startups tend to get founded
by self-selecting groups of ambitious people who already
know one another (at least by reputation), the level of
measurement is more precise than you get from smallness alone.
A startup is not merely ten people, but ten people like you.
Steve Jobs once said that the success or failure of a startup
depends on the first ten employees. I agree. If
anything, it's more like the first five.
Being small is not, in itself, what makes startups kick butt,
but rather that small groups can be select.
You don't want small in the sense of a
village, but small in the sense of an all-star team.
The larger a group, the closer its average member will be to the average
for the population as a whole. So all other things being
equal, a very able person in a big company is probably
getting a bad deal, because his performance is dragged down by
the overall lower performance of the others. Of course,
all other things often are not equal: the able person may
not care about money, or may prefer the stability of a large
company. But a very able person who does care about money
will ordinarily do better to go off and work with a small
group of peers.
Technology = Leverage
Startups offer anyone a way to be in a situation with
measurement and leverage.
They allow measurement because they're small,
and they offer leverage because they
make money by inventing new technology.
What is technology? It's technique. It's the way
we all do things. And when
you discover a new way to do things, its value is multiplied
by all the people who use it. It is the proverbial fishing
rod, rather than the fish. That's the difference between a
startup and a restaurant or a barber shop. You fry eggs or cut
hair one customer at a time. Whereas if
you solve a technical problem that a lot of people care about,
you help everyone who uses your solution.
That's leverage.
If you look at history, it seems that most people
who got rich by creating wealth did it by developing
new technology. You just can't fry eggs or cut hair fast enough.
What made the Florentines rich in 1200
was the discovery of new techniques for making the high-tech
product of the time, fine woven cloth. What made the
Dutch rich in 1600 was the discovery of shipbuilding and
navigation techniques that enabled them to dominate the seas
of the Far East.
Fortunately there is a natural fit between smallness and
solving hard problems. The leading edge of technology moves
fast. Technology that's valuable today could be worthless
in a couple years. Small companies are more at home in this
world, because they don't have layers of bureaucracy to
slow them down.
Also, technical advances tend to come from unorthodox approaches,
and small companies are less constrained by convention.
Big companies can develop technology. They just can't do it
quickly. Their size makes them slow and prevents
them from rewarding employees for the extraordinary
effort required. So in practice big companies only get to develop
technology in fields where large capital requirements prevent startups from
competing with them, like microprocessors, power plants,
or passenger aircraft. And even in those fields they depend heavily
on startups for components and ideas.
It's obvious that biotech or software startups exist to solve
hard technical problems, but
I think it will also be found to be true
in businesses that don't seem to be about technology. McDonald's,
for example, grew big by designing a system, the McDonald's
franchise, that could then be reproduced at will all over the
face of the earth. A McDonald's franchise is controlled by rules
so precise that it is practically
a piece of software. Write once, run everywhere.
Ditto for Wal-Mart. Sam Walton got rich not by being a
retailer, but by designing a new kind of store.
Use difficulty as a guide not just in selecting the overall
aim of your company, but also at decision points along the way.
At Viaweb one of our rules of thumb was run upstairs.
Suppose you are a little, nimble guy being chased by a big,
fat, bully. You open a door and find yourself in a
staircase. Do you go up or down? I say up. The
bully can probably run downstairs as fast as you can.
Going upstairs his bulk will be more of a disadvantage.
Running upstairs is hard for you but even harder for him.
What this meant in practice was that we deliberately sought
hard problems. If there were two features we could add to our
software, both equally valuable in proportion to their difficulty,
we'd always take the harder one. Not just because it was
more valuable, but because it was harder.
We delighted in forcing bigger, slower competitors
to follow us over difficult ground.
Like guerillas, startups prefer the difficult terrain of the
mountains, where the troops of the central government
can't follow. I can remember times when we were just
exhausted after wrestling all day with some horrible technical
problem. And I'd be delighted, because something that was
hard for us would be impossible for our competitors.
This is not just a good way to run a startup. It's what
a startup is.
Venture capitalists know about this and have a phrase for it:
barriers to entry. If you go to a VC with a new
idea and ask him to invest in it, one of the first things
he'll ask is, how hard would this be for someone else to
develop? That is, how much difficult ground
have you put between yourself and potential pursuers?
[7]
And you had better have a convincing explanation of why
your technology would be hard to duplicate. Otherwise as
soon as some big company becomes aware of it, they'll make
their own, and with their brand name, capital, and
distribution clout, they'll take away your market overnight.
You'd be like guerillas caught in the open field by regular
army forces.
One way to put up barriers to entry is through patents.
But patents may not provide much protection.
Competitors commonly find ways to work around a patent.
And if they can't, they
may simply violate it and invite you to sue them.
A big company is not afraid to be sued; it's an everyday thing
for them. They'll make sure that suing them is expensive and
takes a long time.
Ever heard of Philo Farnsworth? He invented
television. The reason you've never
heard of him is that his company was not the one to make
money from it.
[8]
The company that did was RCA, and
Farnsworth's reward for his efforts was a decade of
patent litigation.
Here, as so often, the best defense is a good offense. If
you can develop technology that's simply too hard for
competitors to duplicate, you don't need to rely on other
defenses. Start by picking a hard problem, and
then at every decision point, take the harder choice.
[9]
The Catch(es)
If it were simply a matter of working harder than
an ordinary employee and getting paid proportionately, it would
obviously be a good deal to start a startup. Up to a point it
would be more fun. I don't think many people
like the slow pace of big companies, the interminable meetings,
the water-cooler conversations, the clueless middle managers,
and so on.
Unfortunately there are a couple catches. One is that you
can't choose the point on the curve that you want to inhabit.
You can't decide, for example, that you'd like to work just
two or three times as hard, and get paid that much more. When
you're running a startup, your competitors decide how
hard you work. And they pretty much all make the same decision:
as hard as you possibly can.
The other catch is that the payoff is only on average proportionate
to your productivity. There is, as I said before, a large
random multiplier in the success of any company. So in
practice the deal is not that you're 30 times as productive and get
paid 30 times as much. It is that you're 30 times as productive,
and get paid between zero and a thousand times as much.
If the mean is 30x, the median is probably zero.
Most startups tank, and not just the dogfood
portals we all heard about during
the Internet Bubble. It's common for a startup
to be developing a genuinely good product, take slightly
too long to do it, run out of money, and have to shut down.
A startup is like a mosquito. A bear can absorb a hit and a crab
is armored against one, but a mosquito is designed for one thing:
to score. No energy is wasted on defense. The defense of mosquitos,
as a species, is that there are a lot of them, but this is little
consolation to the individual mosquito.
Startups, like mosquitos, tend to be an all-or-nothing proposition.
And you don't generally know which of the two you're going to
get till the last minute.
Viaweb came close to tanking several times. Our trajectory
was like a sine wave. Fortunately we got bought at
the top of the cycle, but it was damned close. While we were
visiting Yahoo in California to talk about selling the company
to them, we had to borrow a conference room to reassure
an investor who was about to back out of a new round of funding
that we needed to stay alive.
The all-or-nothing aspect of startups was not something we wanted.
Viaweb's hackers were all extremely risk-averse.
If there had been some way just to work super hard and get
paid for it, without having a lottery mixed in, we would have
been delighted. We would have much preferred a 100% chance of
$1 million to a 20% chance of $10 million, even though
theoretically the second is worth twice as much. Unfortunately,
there is not currently any space in the business world where
you can get the first deal.
The closest you can get is by
selling your startup in the early stages, giving up upside
(and risk) for a smaller but guaranteed payoff. We had a
chance to do this, and stupidly, as we then thought, let it slip by.
After that we became comically eager to sell.
For the next year or so,
if anyone expressed the slightest curiosity about Viaweb
we would try to sell them the company. But there were no takers,
so we had to keep going.
It would have been a bargain to
buy us at an early stage, but companies doing acquisitions are not
looking for bargains. A company big enough to acquire
startups will be big enough to be fairly conservative, and
within the company the people in charge of acquisitions will
be among the more conservative, because they are likely to be
business school types who joined the company late.
They would rather overpay for a safe choice. So
it is easier to sell an established startup, even at a large
premium, than an early-stage one.
Get Users
I think it's a good idea to get bought, if you can. Running a
business is different from growing one.
It is just as well to let a big company take over once you reach
cruising altitude. It's
also financially wiser, because selling allows you to diversify.
What would you think of a financial advisor who put all his
client's assets into one volatile stock?
How do you get bought? Mostly by doing the same things
you'd do if you didn't intend to sell the company. Being
profitable, for example. But getting bought is also an art
in its own right, and one that we spent a lot of time trying
to master.
Potential buyers will
always delay if they can. The hard part about getting
bought is getting them to act. For most people, the most powerful motivator
is not the hope of gain, but the fear of loss. For potential
acquirers, the most powerful motivator is the prospect that
one of their competitors will buy you. This, as we found,
causes CEOs to take red-eyes.
The second biggest is the worry that, if they don't buy you
now, you'll continue to grow rapidly and will cost more to
acquire later, or even become a competitor.
In both cases, what it all comes down to is users.
You'd think that a company about to buy you would do a lot of
research and decide for themselves how valuable your technology
was. Not at all. What they go by is the number of users you
have.
In effect, acquirers assume the customers know who has the
best technology. And this is not as stupid as it sounds. Users
are the only real proof that you've created wealth. Wealth is
what people want, and if people aren't using your software,
maybe it's not just because you're bad at marketing. Maybe it's
because you haven't made what they want.
Venture capitalists have a list of danger signs to watch out for.
Near the top is the company run by techno-weenies who are
obsessed with solving interesting technical problems, instead
of making users happy. In a startup, you're not just trying to
solve problems. You're trying to solve problems that
users care about.
So I think you should make users the test, just as
acquirers do. Treat a startup as an optimization problem
in which performance is measured by number of users. As anyone
who has tried to optimize software knows, the key is measurement.
When you try to guess where your program is slow, and what would
make it faster, you almost always guess wrong.
Number of users may not be the perfect test, but it will
be very close. It's what acquirers care about. It's what
revenues depend on.
It's what makes competitors unhappy.
It's what impresses reporters, and potential
new users. Certainly it's a better test than your a priori
notions of what problems are important to solve, no matter how
technically adept you are.
Among other things, treating a startup as an optimization
problem will help you avoid another
pitfall that VCs worry about, and rightly-- taking a long time
to develop a product. Now we can recognize this as something
hackers already know to avoid: premature optimization. Get a version
1.0 out there as soon as you can. Until you have some users to
measure, you're optimizing based on guesses.
The ball you need to keep your eye on here is the underlying
principle that wealth is what people want. If you plan to get
rich by creating wealth, you have to know what people want.
So few businesses really pay attention to making customers happy.
How often do you walk into a store, or call a company on the
phone, with a feeling of dread in the back of your mind?
When you hear "your call is important to us, please stay on
the line," do you think, oh good, now everything will be all right?
A restaurant can afford to serve the occasional burnt dinner.
But in technology, you cook one thing and that's what everyone
eats. So any difference between what people want and what
you deliver is multiplied.
You please or annoy
customers wholesale. The closer you can get to what they want,
the more wealth you generate.
Wealth and Power
Making wealth is not the only way to get rich. For most of
human history it has not even been the most common. Until
a few centuries ago,
the main sources of wealth were mines, slaves and serfs,
land, and cattle,
and the only ways to acquire these rapidly were by inheritance,
marriage, conquest, or confiscation.
Naturally wealth had a bad reputation.
Two things changed. The first was the rule of law. For most of the world's
history, if you did somehow accumulate a fortune, the ruler or his
henchmen
would find a way to steal it.
But in medieval Europe something new happened.
A new class of merchants and manufacturers
began to collect in towns.
[10]
Together they were able to withstand the local feudal
lord. So
for the first time in our history, the bullies stopped stealing the
nerds' lunch money.
This was naturally a great incentive,
and possibly indeed the main cause of the second big change,
industrialization.
A great deal has been written about the causes of the Industrial
Revolution. But surely a necessary, if not sufficient, condition
was that people who made fortunes be able to enjoy them in peace.
[11]
One piece of evidence is what happened to countries
that tried to return to the old model, like the Soviet
Union, and to a lesser extent Britain under the labor
governments of the 1960s and early 1970s. Take away the incentive
of wealth, and technical innovation grinds to a halt.
Remember what a startup is, economically:
a way of saying, I want to work faster. Instead of accumulating
money slowly by being paid a regular wage for fifty years, I
want to get it over with as soon as possible. So governments
that forbid you to accumulate wealth are in effect decreeing
that you work slowly. They're willing to let you earn $3 million over
fifty years, but they're not willing to let you work so hard that
you can do it in two. They are like
the corporate boss that you can't go to and say, I want to work
ten times as hard, so please pay me ten times a much.
Except this is not a boss you can escape by starting your own
company.
The problem with working slowly is not just that technical
innovation happens slowly. It's that it tends not to happen at all.
It's only when you're deliberately looking for hard problems,
as a way to use speed to the greatest advantage, that you take
on this kind of project. Developing new technology is a
pain in the ass. It is, as Edison said, one percent
inspiration and ninety-nine percent perspiration.
Without the incentive of wealth, no one wants to do it.
Engineers will work on sexy projects like fighter planes and moon
rockets for ordinary salaries, but more mundane technologies
like light bulbs or semiconductors have to be developed by entrepreneurs.
Startups
are not just something that happened in Silicon Valley in
the last couple decades. Since it became possible to
get rich by creating wealth, everyone who has done it has
used essentially the same recipe: measurement and leverage,
where measurement comes from working with a small
group, and leverage from developing new techniques.
The recipe was the same in Florence in 1200 as it is
in Santa Clara today.
Understanding this may help to answer an important question:
why Europe grew so powerful.
Was it something about the geography of
Europe? Was it that Europeans are somehow racially superior?
Was it their religion? The answer (or at least
the proximate cause) may be that the
Europeans
rode on the crest of a powerful new idea: allowing those who
made a lot of money to keep it.
Once you're allowed to do that,
people who want to get rich can do it by generating
wealth instead of stealing it.
The resulting technological growth translates not only
into wealth but into military power. The theory that led to
the stealth plane was developed by a Soviet mathematician.
But because the Soviet Union didn't have a computer industry,
it remained for them a theory;
they didn't have hardware capable of executing the calculations
fast enough to design an actual airplane.
In that respect the Cold War teaches the same lesson as
World War II and, for that matter, most wars in recent history.
Don't let a ruling
class of warriors and politicians squash the entrepreneurs.
The same recipe that makes individuals rich
makes countries powerful. Let the nerds keep their lunch
money, and you rule the world.
Notes
[1]
One valuable thing you tend to get only in startups is
uninterruptability. Different kinds of
work have different time quanta. Someone proofreading a
manuscript
could probably be interrupted every fifteen minutes
with little loss of productivity. But the time quantum for
hacking is very long: it might take an hour just to load
a problem into your head. So the
cost of having someone from personnel
call you about a form you forgot to fill out can be huge.
This is why hackers give you such a baleful stare as they
turn from their screen to answer your question. Inside
their heads a giant house of cards is tottering.
The mere possibility of being interrupted deters hackers
from starting hard projects. This is why they
tend to work late at night, and why it's next to impossible
to write great software in a cubicle (except late at night).
One great advantage of startups is that they don't yet have
any of the people who interrupt you. There is no personnel
department, and thus no form nor anyone to call you about it.
[2]
Faced with the idea that people working for startups might be
20 or 30 times as productive as those working for large companies,
executives at large companies will naturally wonder, how could
I get the people working for me to do that? The answer is
simple: pay them to.
Internally most companies are run like Communist states.
If you believe in free markets, why not turn your company into one?
Hypothesis: A company will be maximally profitable when each
employee is paid in proportion to the wealth they generate.
[3]
Until recently even governments sometimes didn't grasp the
distinction between money and wealth. Adam
Smith (Wealth of Nations, v:i) mentions several
that tried to preserve their
"wealth" by forbidding the export of gold or silver.
But having more of the medium of exchange would not make
a country richer; if you have more money chasing the same
amount of material wealth, the only result is higher prices.
[4]
There are many senses of the word "wealth," not all of
them material. I'm not trying to make a deep philosophical
point here about which
is the true kind. I'm writing about one specific,
rather technical sense of the word "wealth." What
people will give you money for.
This is an interesting sort of wealth to study, because
it is the kind that prevents you from starving.
And what people will give you money for depends on them,
not you.
When you're starting a business,
it's easy to slide into thinking that customers
want what you do. During the Internet Bubble I talked
to a woman who, because she liked the outdoors, was
starting an "outdoor portal." You know what
kind of business you should start if you like
the outdoors? One to recover data from crashed hard disks.
What's the connection? None at all. Which is precisely my point.
If you want
to create wealth (in the narrow technical sense of not
starving) then you should be especially skeptical about any
plan that centers on things you like doing.
That is where your idea of what's valuable is least
likely to coincide with other people's.
[5]
In the average car restoration you probably do make everyone
else microscopically poorer, by doing a small amount of damage to
the environment. While environmental costs should be taken
into account, they don't
make wealth a zero-sum game. For example, if you repair
a machine that's broken because a part has come unscrewed,
you create wealth with no environmental cost.
[5b]
This essay was written before Firefox.
[6]
Many people feel confused and depressed in
their early twenties. Life seemed so much more fun in college.
Well, of course it was. Don't be fooled by the surface similarities.
You've gone from guest to servant.
It's possible to have fun in this new world.
Among other things, you now get to go behind the doors that say
"authorized personnel only."
But the change is a shock at first, and all the worse
if you're not consciously aware of it.
[7]
When VCs asked us how long it would take another startup
to duplicate our software, we used to reply that they probably
wouldn't be able to at all. I think this made us seem naive,
or liars.
[8]
Few technologies have one clear inventor. So as
a rule, if you know the "inventor" of something
(the telephone, the assembly line, the airplane,
the light bulb, the transistor) it is because their
company made money from it, and the company's PR people worked
hard to spread the story. If you don't know who invented
something (the automobile, the television, the computer,
the jet engine, the laser), it's because other companies
made all the money.
[9]
This is a good plan for life in general.
If you have two choices, choose the harder.
If you're trying to decide whether to go out running or
sit home and watch TV, go running.
Probably the reason this trick works so well is that
when you have two choices and one is harder, the
only reason you're even considering the other is laziness.
You know in the back of your mind what's the right thing
to do, and this trick merely forces you to acknowledge it.
[10]
It is probably no accident that the middle class
first appeared in northern Italy and the low countries,
where there were no strong central governments. These two
regions were the richest of their time and became the twin
centers from which Renaissance civilization radiated.
If they no longer play that role, it is because
other places, like the United States, have been truer to the
principles they discovered.
[11]
It may indeed be a sufficient condition. But if so, why didn't
the Industrial Revolution happen earlier? Two possible (and
not incompatible) answers: (a) It did.
The Industrial Revolution was one in a series.
(b) Because in medieval towns, monopolies
and guild regulations initially slowed the development of new means
of production.
Comment on this essay.
July 2004
(This essay is derived from a talk at Oscon 2004.)
A few months ago I finished a new
book,
and in reviews I keep
noticing words like "provocative'' and "controversial.'' To say
nothing of "idiotic.''
I didn't mean to make the book controversial. I was trying to make
it efficient. I didn't want to waste people's time telling them
things they already knew. It's more efficient just to give them
the diffs. But I suppose that's bound to yield an alarming book.
Edisons
There's no controversy about which idea is most controversial:
the suggestion that variation in wealth might not be as big a
problem as we think.
I didn't say in the book that variation in wealth was in itself a
good thing. I said in some situations it might be a sign of good
things. A throbbing headache is not a good thing, but it can be
a sign of a good thing-- for example, that you're recovering
consciousness after being hit on the head.
Variation in wealth can be a sign of variation in productivity.
(In a society of one, they're identical.) And that
is almost certainly a good thing: if your society has no variation
in productivity, it's probably not because everyone is Thomas
Edison. It's probably because you have no Thomas Edisons.
In a low-tech society you don't see much variation in productivity.
If you have a tribe of nomads collecting sticks for a fire, how
much more productive is the best stick gatherer going to be than
the worst? A factor of two? Whereas when you hand people a complex tool
like a computer, the variation in what they can do with
it is enormous.
That's not a new idea. Fred Brooks wrote about it in 1974, and
the study he quoted was published in 1968. But I think he
underestimated the variation between programmers. He wrote about productivity in lines
of code: the best programmers can solve a given problem in a tenth
the time. But what if the problem isn't given? In programming, as
in many fields, the hard part isn't solving problems, but deciding
what problems to solve. Imagination is hard to measure, but
in practice it dominates the kind of productivity that's measured
in lines of code.
Productivity varies in any field, but there are few in which it
varies so much. The variation between programmers
is so great that it becomes a difference in kind. I don't
think this is something intrinsic to programming, though. In every field,
technology magnifies differences in productivity. I think what's
happening in programming is just that we have a lot of technological
leverage. But in every field the lever is getting longer, so the
variation we see is something that more and more fields will see
as time goes on. And the success of companies, and countries, will
depend increasingly on how they deal with it.
If variation in productivity increases with technology, then the
contribution of the most productive individuals will not only be
disproportionately large, but will actually grow with time. When
you reach the point where 90% of a group's output is created by 1%
of its members, you lose big if something (whether Viking raids,
or central planning) drags their productivity down to the average.
If we want to get the most out of them, we need to understand these
especially productive people. What motivates them? What do they
need to do their jobs? How do you recognize them? How do you
get them to come and work for you? And then of course there's the
question, how do you become one?
More than Money
I know a handful of super-hackers, so I sat down and thought about
what they have in common. Their defining quality is probably that
they really love to program. Ordinary programmers write code to pay
the bills. Great hackers think of it as something they do for fun,
and which they're delighted to find people will pay them for.
Great programmers are sometimes said to be indifferent to money.
This isn't quite true. It is true that all they really care about
is doing interesting work. But if you make enough money, you get
to work on whatever you want, and for that reason hackers are
attracted by the idea of making really large amounts of money.
But as long as they still have to show up for work every day, they
care more about what they do there than how much they get paid for
it.
Economically, this is a fact of the greatest importance, because
it means you don't have to pay great hackers anything like what
they're worth. A great programmer might be ten or a hundred times
as productive as an ordinary one, but he'll consider himself lucky
to get paid three times as much. As I'll explain later, this is
partly because great hackers don't know how good they are. But
it's also because money is not the main thing they want.
What do hackers want? Like all craftsmen, hackers like good tools.
In fact, that's an understatement. Good hackers find it unbearable
to use bad tools. They'll simply refuse to work on projects with
the wrong infrastructure.
At a startup I once worked for, one of the things pinned up on our
bulletin board was an ad from IBM. It was a picture of an AS400,
and the headline read, I think, "hackers despise
it.'' [1]
When you decide what infrastructure to use for a project, you're
not just making a technical decision. You're also making a social
decision, and this may be the more important of the two. For
example, if your company wants to write some software, it might
seem a prudent choice to write it in Java. But when you choose a
language, you're also choosing a community. The programmers you'll
be able to hire to work on a Java project won't be as
smart as the
ones you could get to work on a project written in Python.
And the quality of your hackers probably matters more than the
language you choose. Though, frankly, the fact that good hackers
prefer Python to Java should tell you something about the relative
merits of those languages.
Business types prefer the most popular languages because they view
languages as standards. They don't want to bet the company on
Betamax. The thing about languages, though, is that they're not
just standards. If you have to move bits over a network, by all
means use TCP/IP. But a programming language isn't just a format.
A programming language is a medium of expression.
I've read that Java has just overtaken Cobol as the most popular
language. As a standard, you couldn't wish for more. But as a
medium of expression, you could do a lot better. Of all the great
programmers I can think of, I know of only one who would voluntarily
program in Java. And of all the great programmers I can think of
who don't work for Sun, on Java, I know of zero.
Great hackers also generally insist on using open source software.
Not just because it's better, but because it gives them more control.
Good hackers insist on control. This is part of what makes them
good hackers: when something's broken, they need to fix it. You
want them to feel this way about the software they're writing for
you. You shouldn't be surprised when they feel the same way about
the operating system.
A couple years ago a venture capitalist friend told me about a new
startup he was involved with. It sounded promising. But the next
time I talked to him, he said they'd decided to build their software
on Windows NT, and had just hired a very experienced NT developer
to be their chief technical officer. When I heard this, I thought,
these guys are doomed. One, the CTO couldn't be a first rate
hacker, because to become an eminent NT developer he would have
had to use NT voluntarily, multiple times, and I couldn't imagine
a great hacker doing that; and two, even if he was good, he'd have
a hard time hiring anyone good to work for him if the project had
to be built on NT. [2]
The Final Frontier
After software, the most important tool to a hacker is probably
his office. Big companies think the function of office space is to express
rank. But hackers use their offices for more than that: they
use their office as a place to think in. And if you're a technology
company, their thoughts are your product. So making hackers work
in a noisy, distracting environment is like having a paint factory
where the air is full of soot.
The cartoon strip Dilbert has a lot to say about cubicles, and with
good reason. All the hackers I know despise them. The mere prospect
of being interrupted is enough to prevent hackers from working on
hard problems. If you want to get real work done in an office with
cubicles, you have two options: work at home, or come in early or
late or on a weekend, when no one else is there. Don't companies
realize this is a sign that something is broken? An office
environment is supposed to be something that helps
you work, not something you work despite.
Companies like Cisco are proud that everyone there has a cubicle,
even the CEO. But they're not so advanced as they think; obviously
they still view office space as a badge of rank. Note too that
Cisco is famous for doing very little product development in house.
They get new technology by buying the startups that created it-- where
presumably the hackers did have somewhere quiet to work.
One big company that understands what hackers need is Microsoft.
I once saw a recruiting ad for Microsoft with a big picture of a
door. Work for us, the premise was, and we'll give you a place to
work where you can actually get work done. And you know, Microsoft
is remarkable among big companies in that they are able to develop
software in house. Not well, perhaps, but well enough.
If companies want hackers to be productive, they should look at
what they do at home. At home, hackers can arrange things themselves
so they can get the most done. And when they work at home, hackers
don't work in noisy, open spaces; they work in rooms with doors. They
work in cosy, neighborhoody places with people around and somewhere
to walk when they need to mull something over, instead of in glass
boxes set in acres of parking lots. They have a sofa they can take
a nap on when they feel tired, instead of sitting in a coma at
their desk, pretending to work. There's no crew of people with
vacuum cleaners that roars through every evening during the prime
hacking hours. There are no meetings or, God forbid, corporate
retreats or team-building exercises. And when you look at what
they're doing on that computer, you'll find it reinforces what I
said earlier about tools. They may have to use Java and Windows
at work, but at home, where they can choose for themselves, you're
more likely to find them using Perl and Linux.
Indeed, these statistics about Cobol or Java being the most popular
language can be misleading. What we ought to look at, if we want
to know what tools are best, is what hackers choose when they can
choose freely-- that is, in projects of their own. When you ask
that question, you find that open source operating systems already
have a dominant market share, and the number one language is probably
Perl.
Interesting
Along with good tools, hackers want interesting projects. What
makes a project interesting? Well, obviously overtly sexy
applications like stealth planes or special effects software would
be interesting to work on. But any application can be interesting
if it poses novel technical challenges. So it's hard to predict
which problems hackers will like, because some become
interesting only when the people working on them discover a new
kind of solution. Before ITA
(who wrote the software inside Orbitz),
the people working on airline fare searches probably thought it
was one of the most boring applications imaginable. But ITA made
it interesting by
redefining the problem in a more ambitious way.
I think the same thing happened at Google. When Google was founded,
the conventional wisdom among the so-called portals was that search
was boring and unimportant. But the guys at Google didn't think
search was boring, and that's why they do it so well.
This is an area where managers can make a difference. Like a parent
saying to a child, I bet you can't clean up your whole room in
ten minutes, a good manager can sometimes redefine a problem as a
more interesting one. Steve Jobs seems to be particularly good at
this, in part simply by having high standards. There were a lot
of small, inexpensive computers before the Mac. He redefined the
problem as: make one that's beautiful. And that probably drove
the developers harder than any carrot or stick could.
They certainly delivered. When the Mac first appeared, you didn't
even have to turn it on to know it would be good; you could tell
from the case. A few weeks ago I was walking along the street in
Cambridge, and in someone's trash I saw what appeared to be a Mac
carrying case. I looked inside, and there was a Mac SE. I carried
it home and plugged it in, and it booted. The happy Macintosh
face, and then the finder. My God, it was so simple. It was just
like ... Google.
Hackers like to work for people with high standards. But it's not
enough just to be exacting. You have to insist on the right things.
Which usually means that you have to be a hacker yourself. I've
seen occasional articles about how to manage programmers. Really
there should be two articles: one about what to do if
you are yourself a programmer, and one about what to do if you're not. And the
second could probably be condensed into two words: give up.
The problem is not so much the day to day management. Really good
hackers are practically self-managing. The problem is, if you're
not a hacker, you can't tell who the good hackers are. A similar
problem explains why American cars are so ugly. I call it the
design paradox. You might think that you could make your products
beautiful just by hiring a great designer to design them. But if
you yourself don't have good taste,
how are you going to recognize
a good designer? By definition you can't tell from his portfolio.
And you can't go by the awards he's won or the jobs he's had,
because in design, as in most fields, those tend to be driven by
fashion and schmoozing, with actual ability a distant third.
There's no way around it: you can't manage a process intended to
produce beautiful things without knowing what beautiful is. American
cars are ugly because American car companies are run by people with
bad taste.
Many people in this country think of taste as something elusive,
or even frivolous. It is neither. To drive design, a manager must
be the most demanding user of a company's products. And if you
have really good taste, you can, as Steve Jobs does, make satisfying
you the kind of problem that good people like to work on.
Nasty Little Problems
It's pretty easy to say what kinds of problems are not interesting:
those where instead of solving a few big, clear, problems, you have
to solve a lot of nasty little ones. One of the worst kinds of
projects is writing an interface to a piece of software that's
full of bugs. Another is when you have to customize
something for an individual client's complex and ill-defined needs.
To hackers these kinds of projects are the death of a thousand
cuts.
The distinguishing feature of nasty little problems is that you
don't learn anything from them. Writing a compiler is interesting
because it teaches you what a compiler is. But writing an interface
to a buggy piece of software doesn't teach you anything, because the
bugs are random. [3] So it's not just fastidiousness that makes good
hackers avoid nasty little problems. It's more a question of
self-preservation. Working on nasty little problems makes you
stupid. Good hackers avoid it for the same reason models avoid
cheeseburgers.
Of course some problems inherently have this character. And because
of supply and demand, they pay especially well. So a company that
found a way to get great hackers to work on tedious problems would
be very successful. How would you do it?
One place this happens is in startups. At our startup we had
Robert Morris working as a system administrator. That's like having the
Rolling Stones play at a bar mitzvah. You can't hire that kind of
talent. But people will do any amount of drudgery for companies
of which they're the founders. [4]
Bigger companies solve the problem by partitioning the company.
They get smart people to work for them by establishing a separate
R&D department where employees don't have to work directly on
customers' nasty little problems. [5] In this model, the research
department functions like a mine. They produce new ideas; maybe
the rest of the company will be able to use them.
You may not have to go to this extreme.
Bottom-up programming
suggests another way to partition the company: have the smart people
work as toolmakers. If your company makes software to do x, have
one group that builds tools for writing software of that type, and
another that uses these tools to write the applications. This way
you might be able to get smart people to write 99% of your code,
but still keep them almost as insulated from users as they would
be in a traditional research department. The toolmakers would have
users, but they'd only be the company's own developers. [6]
If Microsoft used this approach, their software wouldn't be so full
of security holes, because the less smart people writing the actual
applications wouldn't be doing low-level stuff like allocating
memory. Instead of writing Word directly in C, they'd be plugging
together big Lego blocks of Word-language. (Duplo, I believe, is
the technical term.)
Clumping
Along with interesting problems, what good hackers like is other
good hackers. Great hackers tend to clump together-- sometimes
spectacularly so, as at Xerox Parc. So you won't attract good
hackers in linear proportion to how good an environment you create
for them. The tendency to clump means it's more like the square
of the environment. So it's winner take all. At any given time,
there are only about ten or twenty places where hackers most want to
work, and if you aren't one of them, you won't just have fewer
great hackers, you'll have zero.
Having great hackers is not, by itself, enough to make a company
successful. It works well for Google and ITA, which are two of
the hot spots right now, but it didn't help Thinking Machines or
Xerox. Sun had a good run for a while, but their business model
is a down elevator. In that situation, even the best hackers can't
save you.
I think, though, that all other things being equal, a company that
can attract great hackers will have a huge advantage. There are
people who would disagree with this. When we were making the rounds
of venture capital firms in the 1990s, several told us that software
companies didn't win by writing great software, but through brand,
and dominating channels, and doing the right deals.
They really seemed to believe this, and I think I know why. I
think what a lot of VCs are looking for, at least unconsciously,
is the next Microsoft. And of course if Microsoft is your model,
you shouldn't be looking for companies that hope to win by writing
great software. But VCs are mistaken to look for the next Microsoft,
because no startup can be the next Microsoft unless some other
company is prepared to bend over at just the right moment and be
the next IBM.
It's a mistake to use Microsoft as a model, because their whole
culture derives from that one lucky break. Microsoft is a bad data
point. If you throw them out, you find that good products do tend
to win in the market. What VCs should be looking for is the next
Apple, or the next Google.
I think Bill Gates knows this. What worries him about Google is
not the power of their brand, but the fact that they have
better hackers. [7]
Recognition
So who are the great hackers? How do you know when you meet one?
That turns out to be very hard. Even hackers can't tell. I'm
pretty sure now that my friend Trevor Blackwell is a great hacker.
You may have read on Slashdot how he made his
own Segway. The
remarkable thing about this project was that he wrote all the
software in one day (in Python, incidentally).
For Trevor, that's
par for the course. But when I first met him, I thought he was a
complete idiot. He was standing in Robert Morris's office babbling
at him about something or other, and I remember standing behind
him making frantic gestures at Robert to shoo this nut out of his
office so we could go to lunch. Robert says he misjudged Trevor
at first too. Apparently when Robert first met him, Trevor had
just begun a new scheme that involved writing down everything about
every aspect of his life on a stack of index cards, which he carried
with him everywhere. He'd also just arrived from Canada, and had
a strong Canadian accent and a mullet.
The problem is compounded by the fact that hackers, despite their
reputation for social obliviousness, sometimes put a good deal of
effort into seeming smart. When I was in grad school I used to
hang around the MIT AI Lab occasionally. It was kind of intimidating
at first. Everyone there spoke so fast. But after a while I
learned the trick of speaking fast. You don't have to think any
faster; just use twice as many words to say everything.
With this amount of noise in the signal, it's hard to tell good
hackers when you meet them. I can't tell, even now. You also
can't tell from their resumes. It seems like the only way to judge
a hacker is to work with him on something.
And this is the reason that high-tech areas
only happen around universities. The active ingredient
here is not so much the professors as the students. Startups grow up
around universities because universities bring together promising young
people and make them work on the same projects. The
smart ones learn who the other smart ones are, and together
they cook up new projects of their own.
Because you can't tell a great hacker except by working with him,
hackers themselves can't tell how good they are. This is true to
a degree in most fields. I've found that people who
are great at something are not so much convinced of their own
greatness as mystified at why everyone else seems so incompetent.
But it's particularly hard for hackers to know how good they are,
because it's hard to compare their work. This is easier in most
other fields. In the hundred meters, you know in 10 seconds who's
fastest. Even in math there seems to be a general consensus about
which problems are hard to solve, and what constitutes a good
solution. But hacking is like writing. Who can say which of two
novels is better? Certainly not the authors.
With hackers, at least, other hackers can tell. That's because,
unlike novelists, hackers collaborate on projects. When you get
to hit a few difficult problems over the net at someone, you learn
pretty quickly how hard they hit them back. But hackers can't
watch themselves at work. So if you ask a great hacker how good
he is, he's almost certain to reply, I don't know. He's not just
being modest. He really doesn't know.
And none of us know, except about people we've actually worked
with. Which puts us in a weird situation: we don't know who our
heroes should be. The hackers who become famous tend to become
famous by random accidents of PR. Occasionally I need to give an
example of a great hacker, and I never know who to use. The first
names that come to mind always tend to be people I know personally,
but it seems lame to use them. So, I think, maybe I should say
Richard Stallman, or Linus Torvalds, or Alan Kay, or someone famous
like that. But I have no idea if these guys are great hackers.
I've never worked with them on anything.
If there is a Michael Jordan of hacking, no one knows, including
him.
Cultivation
Finally, the question the hackers have all been wondering about:
how do you become a great hacker? I don't know if it's possible
to make yourself into one. But it's certainly possible to do things
that make you stupid, and if you can make yourself stupid, you
can probably make yourself smart too.
The key to being a good hacker may be to work on what you like.
When I think about the great hackers I know, one thing they have
in common is the extreme
difficulty of making them work
on anything they
don't want to. I don't know if this is cause or effect; it may be
both.
To do something well you have to love it.
So to the extent you
can preserve hacking as something you love, you're likely to do it
well. Try to keep the sense of wonder you had about programming at
age 14. If you're worried that your current job is rotting your
brain, it probably is.
The best hackers tend to be smart, of course, but that's true in
a lot of fields. Is there some quality that's unique to hackers?
I asked some friends, and the number one thing they mentioned was
curiosity.
I'd always supposed that all smart people were curious--
that curiosity was simply the first derivative of knowledge. But
apparently hackers are particularly curious, especially about how
things work. That makes sense, because programs are in effect
giant descriptions of how things work.
Several friends mentioned hackers' ability to concentrate-- their
ability, as one put it, to "tune out everything outside their own
heads.'' I've certainly noticed this. And I've heard several
hackers say that after drinking even half a beer they can't program at
all. So maybe hacking does require some special ability to focus.
Perhaps great hackers can load a large amount of context into their
head, so that when they look at a line of code, they see not just
that line but the whole program around it. John McPhee
wrote that Bill Bradley's success as a basketball player was due
partly to his extraordinary peripheral vision. "Perfect'' eyesight
means about 47 degrees of vertical peripheral vision. Bill Bradley
had 70; he could see the basket when he was looking at the floor.
Maybe great hackers have some similar inborn ability. (I cheat by
using a very dense language,
which shrinks the court.)
This could explain the disconnect over cubicles. Maybe the people
in charge of facilities, not having any concentration to shatter,
have no idea that working in a cubicle feels to a hacker like having
one's brain in a blender. (Whereas Bill, if the rumors of autism
are true, knows all too well.)
One difference I've noticed between great hackers and smart people
in general is that hackers are more
politically incorrect. To the
extent there is a secret handshake among good hackers, it's when they
know one another well enough to express opinions that would get
them stoned to death by the general public. And I can see why
political incorrectness would be a useful quality in programming.
Programs are very complex and, at least in the hands of good
programmers, very fluid. In such situations it's helpful to have
a habit of questioning assumptions.
Can you cultivate these qualities? I don't know. But you can at
least not repress them. So here is my best shot at a recipe. If
it is possible to make yourself into a great hacker, the way to do
it may be to make the following deal with yourself: you never have
to work on boring projects (unless your family will starve otherwise),
and in return, you'll never allow yourself to do a half-assed job.
All the great hackers I know seem to have made that deal, though
perhaps none of them had any choice in the matter.
Notes
[1] In fairness, I have to say that IBM makes decent hardware. I
wrote this on an IBM laptop.
[2] They did turn out to be doomed. They shut down a few months
later.
[3] I think this is what people mean when they talk
about the "meaning of life." On the face of it, this seems an
odd idea. Life isn't an expression; how could it have meaning?
But it can have a quality that feels a lot like meaning. In a project
like a compiler, you have to solve a lot of problems, but the problems
all fall into a pattern, as in a signal. Whereas when the problems
you have to solve are random, they seem like noise.
[4] Einstein at one point worked designing refrigerators. (He had equity.)
[5] It's hard to say exactly what constitutes research in the
computer world, but as a first approximation, it's software that
doesn't have users.
I don't think it's publication that makes the best hackers want to work
in research departments. I think it's mainly not having to have a
three hour meeting with a product manager about problems integrating
the Korean version of Word 13.27 with the talking paperclip.
[6] Something similar has been happening for a long time in the
construction industry. When you had a house built a couple hundred
years ago, the local builders built everything in it. But increasingly
what builders do is assemble components designed and manufactured
by someone else. This has, like the arrival of desktop publishing,
given people the freedom to experiment in disastrous ways, but it
is certainly more efficient.
[7] Google is much more dangerous to Microsoft than Netscape was.
Probably more dangerous than any other company has ever been. Not
least because they're determined to fight. On their job listing
page, they say that one of their "core values'' is "Don't be evil.''
From a company selling soybean oil or mining equipment, such a
statement would merely be eccentric. But I think all of us in the
computer world recognize who that is a declaration of war on.
Thanks to Jessica Livingston, Robert Morris, and Sarah Harlin
for reading earlier versions of this talk.




Comment on this essay.
March 2005
(This essay is derived from a talk at the Harvard Computer
Society.)
You need three things to create a successful startup: to start with
good people, to make something customers actually want, and to spend
as little money as possible. Most startups that fail do it because
they fail at one of these. A startup that does all three will
probably succeed.
And that's kind of exciting, when you think about it, because all
three are doable. Hard, but doable. And since a startup that
succeeds ordinarily makes its founders rich, that implies getting
rich is doable too. Hard, but doable.
If there is one message I'd like to get across about startups,
that's it. There is no magically difficult step that requires
brilliance to solve.
The Idea
In particular, you don't need a brilliant
idea to start a startup
around. The way a startup makes money is to offer people better
technology than they have now. But what people have now is often
so bad that it doesn't take brilliance to do better.
Google's plan, for example, was simply to create a search site that
didn't suck. They had three new ideas: index more of the Web, use
links to rank search results, and have clean, simple web pages with
unintrusive keyword-based ads. Above all, they were determined to
make a site that was good to use. No doubt there are great technical
tricks within Google, but the overall plan was straightforward.
And while they probably have bigger ambitions now, this alone brings
them a billion dollars a year. [1]
There are plenty of other areas that are just as backward as search
was before Google. I can think of several heuristics for generating
ideas for startups, but most reduce to this: look at something
people are trying to do, and figure out how to do it in a way that
doesn't suck.
For example, dating sites currently suck far worse than search did
before Google. They all use the same simple-minded model.
They seem to have approached the problem by thinking about how to
do database matches instead of how dating works in the real world.
An undergrad could build something better as a class project. And
yet there's a lot of money at stake. Online dating is a valuable
business now, and it might be worth a hundred times as much if it
worked.
An idea for a startup, however, is only a beginning. A lot of
would-be startup founders think the key to the whole process is the
initial idea, and from that point all you have to do is execute.
Venture capitalists know better. If you go to VC firms with a
brilliant idea that you'll tell them about if they sign a nondisclosure
agreement, most will tell you to get lost. That shows how much a
mere idea is worth. The market price is less than the inconvenience
of signing an NDA.
Another sign of how little the initial idea is worth is the number
of startups that change their plan en route. Microsoft's original
plan was to make money selling programming languages, of all things.
Their current business model didn't occur to them until IBM dropped
it in their lap five years later.
Ideas for startups are worth something, certainly, but the trouble
is, they're not transferrable. They're not something you could
hand to someone else to execute. Their value is mainly as starting
points: as questions for the people who had them to continue thinking
about.
What matters is not ideas, but the people who have them. Good
people can fix bad ideas, but good ideas can't save bad people.
People
What do I mean by good people? One of the best tricks I learned
during our startup was a rule for deciding
who to hire. Could you
describe the person as an animal? It might be hard to translate
that into another language, but I think everyone in the US knows
what it means. It means someone who takes their work a little too
seriously; someone who does what they do so well that they pass
right through professional and cross over into obsessive.
What it means specifically depends on the job: a salesperson who
just won't take no for an answer; a hacker who will stay up till
4:00 AM rather than go to bed leaving code with a bug in it; a PR
person who will cold-call New York Times reporters on their cell
phones; a graphic designer who feels physical pain when something
is two millimeters out of place.
Almost everyone who worked for us was an animal at what they did.
The woman in charge of sales was so tenacious that I used to feel
sorry for potential customers on the phone with her. You could
sense them squirming on the hook, but you knew there would be no
rest for them till they'd signed up.
If you think about people you know, you'll find the animal test is
easy to apply. Call the person's image to mind and imagine the
sentence "so-and-so is an animal." If you laugh, they're not. You
don't need or perhaps even want this quality in big companies, but
you need it in a startup.
For programmers we had three additional tests. Was the person
genuinely smart? If so, could they actually get things done? And
finally, since a few good hackers have unbearable personalities,
could we stand to have them around?
That last test filters out surprisingly few people. We could bear
any amount of nerdiness if someone was truly smart. What we couldn't
stand were people with a lot of attitude. But most of those weren't
truly smart, so our third test was largely a restatement of the
first.
When nerds are unbearable it's usually because they're trying too
hard to seem smart. But the smarter they are, the less pressure
they feel to act smart. So as a rule you can recognize genuinely
smart people by their ability to say things like "I don't know,"
"Maybe you're right," and "I don't understand x well enough."
This technique doesn't always work, because people can be influenced
by their environment. In the MIT CS department, there seems to be
a tradition of acting like a brusque know-it-all. I'm told it derives
ultimately from Marvin Minsky, in the same way the classic airline
pilot manner is said to derive from Chuck Yeager. Even genuinely
smart people start to act this way there, so you have to make
allowances.
It helped us to have Robert Morris, who is one of the readiest to
say "I don't know" of anyone I've met. (At least, he was before he
became a professor at MIT.) No one dared put on attitude around
Robert, because he was obviously smarter than they were and yet had
zero attitude himself.
Like most startups, ours began with a group of friends, and it was
through personal contacts that we got most of the people we hired.
This is a crucial difference between startups and big companies.
Being friends with someone for even a couple days will tell you
more than companies could ever learn in interviews. [2]
It's no coincidence that startups start around universities, because
that's where smart people meet. It's not what people learn in
classes at MIT and Stanford that has made technology companies
spring up around them. They could sing campfire songs in the classes
so long as admissions worked the same.
If you start a startup, there's a good chance it will be with people
you know from college or grad school. So in theory you ought to
try to make friends with as many smart people as you can in school,
right? Well, no. Don't make a conscious effort to schmooze; that
doesn't work well with hackers.
What you should do in college is work on your own projects. Hackers
should do this even if they don't plan to start startups, because
it's the only real way to learn how to program. In some cases you
may collaborate with other students, and this is the best way to
get to know good hackers. The project may even grow into a startup.
But once again, I wouldn't aim too directly at either target. Don't
force things; just work on stuff you like with people you like.
Ideally you want between two and four founders. It would be hard
to start with just one. One person would find the moral weight of
starting a company hard to bear. Even Bill Gates, who seems to be
able to bear a good deal of moral weight, had to have a co-founder.
But you don't want so many founders that the company starts to look
like a group photo. Partly because you don't need a lot of people
at first, but mainly because the more founders you have, the worse
disagreements you'll have. When there are just two or three founders,
you know you have to resolve disputes immediately or perish. If
there are seven or eight, disagreements can linger and harden into
factions. You don't want mere voting; you need unanimity.
In a technology startup, which most startups are, the founders
should include technical people. During the Internet Bubble there
were a number of startups founded by business people who then went
looking for hackers to create their product for them. This doesn't
work well. Business people are bad at deciding what to do with
technology, because they don't know what the options are, or which
kinds of problems are hard and which are easy. And when business
people try to hire hackers, they can't tell which ones are
good.
Even other hackers have a hard time doing that.
For business people it's roulette.
Do the founders of a startup have to include business people? That
depends. We thought so when we started ours, and we asked several
people who were said to know about this mysterious thing called
"business" if they would be the president. But they all said no,
so I had to do it myself. And what I discovered was that business
was no great mystery. It's not something like physics or medicine
that requires extensive study. You just try to get people to pay
you for stuff.
I think the reason I made such a mystery of business was that I was
disgusted by the idea of doing it. I wanted to work in the pure,
intellectual world of software, not deal with customers' mundane
problems. People who don't want to get dragged into some kind of
work often develop a protective incompetence at it. Paul Erdos was
particularly good at this. By seeming unable even to cut a grapefruit
in half (let alone go to the store and buy one), he forced other
people to do such things for him, leaving all his time free for
math. Erdos was an extreme case, but most husbands use the same
trick to some degree.
Once I was forced to discard my protective incompetence, I found
that business was neither so hard nor so boring as I feared. There
are esoteric areas of business that are quite hard, like tax law
or the pricing of derivatives, but you don't need to know about
those in a startup. All you need to know about business to run a
startup are commonsense things people knew before there were business
schools, or even universities.
If you work your way down the Forbes 400 making an x next to the
name of each person with an MBA, you'll learn something important
about business school. After Warren Buffett, you don't hit another
MBA till number 22,
Phil Knight, the CEO of Nike. There are only 5 MBAs in the top
50. What you notice in the Forbes 400 are a lot of people with
technical backgrounds. Bill Gates, Steve Jobs, Larry Ellison,
Michael Dell, Jeff Bezos, Gordon Moore. The rulers of the technology
business tend to come from technology, not business. So if you
want to invest two years in something that will help you succeed
in business, the evidence suggests you'd do better to learn how to
hack than get an MBA. [3]
There is one reason you might want to include business people in a
startup, though: because you have to have at least one person willing
and able to focus on what customers want. Some believe only business
people can do this-- that hackers can implement software, but not
design it. That's nonsense. There's nothing about knowing how to
program that prevents hackers from understanding users, or about
not knowing how to program that magically enables business people
to understand them.
If you can't understand users, however, you should either learn how
or find a co-founder who can. That is the single most important
issue for technology startups, and the rock that sinks more of them
than anything else.
What Customers Want
It's not just startups that have to worry about this. I think most
businesses that fail do it because they don't give customers what
they want. Look at restaurants. A large percentage fail, about a
quarter in the first year. But can you think of one restaurant
that had really good food and went out of business?
Restaurants with great food seem to prosper no matter what. A
restaurant with great food can be expensive, crowded, noisy, dingy,
out of the way, and even have bad service, and people will keep
coming. It's true that a restaurant with mediocre food can sometimes
attract customers through gimmicks. But that approach is very
risky. It's more straightforward just to make the food good.
It's the same with technology. You hear all kinds of reasons why
startups fail. But can you think of one that had a massively popular
product and still failed?
In nearly every failed startup, the real problem was that customers
didn't want the product. For most, the cause of death is listed
as "ran out of funding," but that's only the immediate cause. Why
couldn't they get more funding? Probably because the product was
a dog, or never seemed likely to be done, or both.
When I was trying to think of the things every startup needed to
do, I almost included a fourth: get a version 1 out as soon as you
can. But I decided not to, because that's implicit in making
something customers want. The only way to make something customers
want is to get a prototype in front of them and refine it based on
their reactions.
The other approach is what I call the "Hail Mary" strategy. You
make elaborate plans for a product, hire a team of engineers to
develop it (people who do this tend to use the term "engineer" for
hackers), and then find after a year that you've spent two million
dollars to develop something no one wants. This was not uncommon
during the Bubble, especially in companies run by business types,
who thought of software development as something terrifying that
therefore had to be carefully planned.
We never even considered that approach. As a Lisp hacker, I come
from the tradition of rapid prototyping. I would not claim (at
least, not here) that this is the right way to write every program,
but it's certainly the right way to write software for a startup.
In a startup, your initial plans are almost certain to be wrong in
some way, and your first priority should be to figure out where.
The only way to do that is to try implementing them.
Like most startups, we changed our plan on the fly. At first we
expected our customers to be Web consultants. But it turned out
they didn't like us, because our software was easy to use and we hosted
the site. It would be too easy for clients to fire them. We also
thought we'd be able to sign up a lot of catalog companies, because
selling online was a natural extension of their existing business.
But in 1996 that was a hard sell. The middle managers we talked
to at catalog companies saw the Web not as an opportunity, but as
something that meant more work for them.
We did get a few of the more adventurous catalog companies. Among
them was Frederick's of Hollywood, which gave us valuable experience
dealing with heavy loads on our servers. But most of our users
were small, individual merchants who saw the Web as an opportunity
to build a business. Some had retail stores, but many only existed
online. And so we changed direction to focus on these users.
Instead of concentrating on the features Web consultants and catalog
companies would want, we worked to make the software easy to use.
I learned something valuable from that. It's worth trying very,
very hard to make technology easy to use. Hackers are so used to
computers that they have no idea how horrifying software seems to
normal people. Stephen Hawking's editor told him that every equation
he included in his book would cut sales in half. When you work on
making technology easier to use, you're riding that curve up instead
of down. A 10% improvement in ease of use doesn't just increase
your sales 10%. It's more likely to double your sales.
How do you figure out what customers want? Watch them. One of the
best places to do this was at trade shows. Trade shows didn't pay
as a way of getting new customers, but they were worth it as market
research. We didn't just give canned presentations at trade shows.
We used to show people how to build real, working stores. Which
meant we got to watch as they used our software, and talk to them
about what they needed.
No matter what kind of startup you start, it will probably be a
stretch for you, the founders, to understand what users want. The
only kind of software you can build without studying users is the
sort for which you are the typical user. But this is just the kind
that tends to be open source: operating systems, programming
languages, editors, and so on. So if you're developing technology
for money, you're probably not going to be developing it for people
like you. Indeed, you can use this as a way to generate ideas for
startups: what do people who are not like you want from technology?
When most people think of startups, they think of companies like
Apple or Google. Everyone knows these, because they're big consumer
brands. But for every startup like that, there are twenty more
that operate in niche markets or live quietly down in the infrastructure.
So if you start a successful startup, odds are you'll start one of
those.
Another way to say that is, if you try to start the kind of startup
that has to be a big consumer brand, the odds against succeeding
are steeper. The best odds are in niche markets. Since startups
make money by offering people something better than they had before,
the best opportunities are where things suck most. And it would
be hard to find a place where things suck more than in corporate
IT departments. You would not believe the amount of money companies
spend on software, and the crap they get in return. This imbalance
equals opportunity.
If you want ideas for startups, one of the most valuable things you
could do is find a middle-sized non-technology company and spend a
couple weeks just watching what they do with computers. Most good
hackers have no more idea of the horrors perpetrated in these places
than rich Americans do of what goes on in Brazilian slums.
Start by writing software for smaller companies, because it's easier
to sell to them. It's worth so much to sell stuff to big companies
that the people selling them the crap they currently use spend a
lot of time and money to do it. And while you can outhack Oracle
with one frontal lobe tied behind your back, you can't outsell an
Oracle salesman. So if you want to win through better technology,
aim at smaller customers. [4]
They're the more strategically valuable part of the market anyway.
In technology, the low end always eats the high end. It's easier
to make an inexpensive product more powerful than to make a powerful
product cheaper. So the products that start as cheap, simple options
tend to gradually grow more powerful till, like water rising in a
room, they squash the "high-end" products against the ceiling. Sun
did this to mainframes, and Intel is doing it to Sun. Microsoft
Word did it to desktop publishing software like Interleaf and
Framemaker. Mass-market digital cameras are doing it to the expensive
models made for professionals. Avid did it to the manufacturers
of specialized video editing systems, and now Apple is doing it to
Avid. Henry Ford did it to the car makers that preceded
him. If you build the simple, inexpensive option, you'll not only
find it easier to sell at first, but you'll also be in the best
position to conquer the rest of the market.
It's very dangerous to let anyone fly under you. If you have the
cheapest, easiest product, you'll own the low end. And if you
don't, you're in the crosshairs of whoever does.
Raising Money
To make all this happen, you're going to need money. Some startups
have been self-funding-- Microsoft for example-- but most aren't.
I think it's wise to take money from investors. To be self-funding,
you have to start as a consulting company, and it's hard to switch
from that to a product company.
Financially, a startup is like a pass/fail course. The way to get
rich from a startup is to maximize the company's chances of succeeding,
not to maximize the amount of stock you retain. So if you can trade
stock for something that improves your odds, it's probably a smart
move.
To most hackers, getting investors seems like a terrifying and
mysterious process. Actually it's merely tedious. I'll try to
give an outline of how it works.
The first thing you'll need is a few tens of thousands of dollars
to pay your expenses while you develop a prototype. This is called
seed capital. Because so little money is involved, raising seed
capital is comparatively easy-- at least in the sense of getting a
quick yes or no.
Usually you get seed money from individual rich people called
"angels." Often they're people who themselves got rich from technology.
At the seed stage, investors don't expect you to have an elaborate
business plan. Most know that they're supposed to decide quickly.
It's not unusual to get a check within a week based on a half-page
agreement.
We started Viaweb with $10,000 of seed money from our friend Julian.
But he gave us a lot more than money. He's a former CEO and also
a corporate lawyer, so he gave us a lot of valuable advice about
business, and also did all the legal work of getting us set up as
a company. Plus he introduced us to one of the two
angel investors who supplied our next round of funding.
Some angels, especially those with technology backgrounds, may be
satisfied with a demo and a verbal description of what you plan to
do. But many will want a copy of your business plan, if only to
remind themselves what they invested in.
Our angels asked for one, and looking back, I'm amazed how much
worry it caused me. "Business plan" has that word "business" in
it, so I figured it had to be something I'd have to read a book
about business plans to write. Well, it doesn't. At this stage,
all most investors expect is a brief description of what you plan
to do and how you're going to make money from it, and the resumes
of the founders. If you just sit down and write out what you've
been saying to one another, that should be fine. It shouldn't take
more than a couple hours, and you'll probably find that writing it
all down gives you more ideas about what to do.
For the angel to have someone to make the check out to, you're going
to have to have some kind of company. Merely incorporating yourselves
isn't hard. The problem is, for the company to exist, you have to
decide who the founders are, and how much stock they each have. If
there are two founders with the same qualifications who are both
equally committed to the business, that's easy. But if you have a
number of people who are expected to contribute in varying degrees,
arranging the proportions of stock can be hard. And once you've
done it, it tends to be set in stone.
I have no tricks for dealing with this problem. All I can say is,
try hard to do it right. I do have a rule of thumb for recognizing
when you have, though. When everyone feels they're getting a
slightly bad deal, that they're doing more than they should for the
amount of stock they have, the stock is optimally apportioned.
There is more to setting up a company than incorporating it, of
course: insurance, business license, unemployment compensation,
various things with the IRS. I'm not even sure what the list is,
because we, ah, skipped all that. When we got real funding near
the end of 1996, we hired a great CFO, who fixed everything
retroactively. It turns out that no one comes and arrests you if
you don't do everything you're supposed to when starting a company.
And a good thing too, or a lot of startups would never get started.
[5]
It can be dangerous to delay turning yourself into a company, because
one or more of the founders might decide to split off and start
another company doing the same thing. This does happen. So when
you set up the company, as well as as apportioning the stock, you
should get all the founders to sign something agreeing that everyone's
ideas belong to this company, and that this company is going to be
everyone's only job.
[If this were a movie, ominous music would begin here.]
While you're at it, you should ask what else they've signed. One
of the worst things that can happen to a startup is to run into
intellectual property problems. We did, and it came closer to
killing us than any competitor ever did.
As we were in the middle of getting bought, we discovered that one
of our people had, early on, been bound by an agreement that said
all his ideas belonged to the giant company that was paying for him
to go to grad school. In theory, that could have meant someone
else owned big chunks of our software. So the acquisition came to
a screeching halt while we tried to sort this out. The problem
was, since we'd been about to be acquired, we'd allowed ourselves
to run low on cash. Now we needed to raise more to keep going.
But it's hard to raise money with an IP cloud over your head, because
investors can't judge how serious it is.
Our existing investors, knowing that we needed money and had nowhere
else to get it, at this point attempted certain gambits which I
will not describe in detail, except to remind readers that the word
"angel" is a metaphor. The founders thereupon proposed to walk
away from the company, after giving the investors a brief tutorial
on how to administer the servers themselves. And while this was
happening, the acquirers used the delay as an excuse to welch on
the deal.
Miraculously it all turned out ok. The investors backed down; we
did another round of funding at a reasonable valuation; the giant
company finally gave us a piece of paper saying they didn't own our
software; and six months later we were bought by Yahoo for much
more than the earlier acquirer had agreed to pay. So we were happy
in the end, though the experience probably took several years off
my life.
Don't do what we did. Before you consummate a startup, ask
everyone about their previous IP history.
Once you've got a company set up, it may seem presumptuous to go
knocking on the doors of rich people and asking them to invest tens
of thousands of dollars in something that is really just a bunch
of guys with some ideas. But when you look at it from the rich
people's point of view, the picture is more encouraging. Most rich
people are looking for good investments. If you really think you
have a chance of succeeding, you're doing them a favor by letting
them invest. Mixed with any annoyance they might feel about being
approached will be the thought: are these guys the next Google?
Usually angels are financially equivalent to founders. They get
the same kind of stock and get diluted the same amount in future
rounds. How much stock should they get? That depends on how
ambitious you feel. When you offer x percent of your company for
y dollars, you're implicitly claiming a certain value for the whole
company. Venture investments are usually described in terms of
that number. If you give an investor new shares equal to 5% of
those already outstanding in return for $100,000, then you've done
the deal at a pre-money valuation of $2 million.
How do you decide what the value of the company should be? There
is no rational way. At this stage the company is just a bet. I
didn't realize that when we were raising money. Julian
thought we ought to value the company at several million
dollars. I thought it was preposterous to claim that a couple
thousand lines of code, which was all we had at the time, were worth
several million dollars. Eventually we settled on one million,
because Julian said no one would invest in a company with a valuation
any lower. [6]
What I didn't grasp at the time was that the valuation wasn't just
the value of the code we'd written so far. It was also the value
of our ideas, which turned out to be right, and of all the future
work we'd do, which turned out to be a lot.
The next round of funding is the one in which you might deal with
actual
venture capital firms.
But don't wait till you've burned
through your last round of funding to start approaching them. VCs are slow to
make up their minds. They can take months. You don't want to be
running out of money while you're trying to negotiate with them.
Getting money from an actual VC firm is a bigger deal than getting
money from angels. The amounts of money involved are larger, millions
usually. So the deals take longer, dilute you more, and impose
more onerous conditions.
Sometimes the VCs want to install a new CEO of their own choosing.
Usually the claim is that you need someone mature and experienced,
with a business background. Maybe in some cases this is true. And
yet Bill Gates was young and inexperienced and had no business
background, and he seems to have done ok. Steve Jobs got booted
out of his own company by someone mature and experienced, with a
business background, who then proceeded to ruin the company. So I
think people who are mature and experienced, with a business
background, may be overrated. We used to call these guys "newscasters,"
because they had neat hair and spoke in deep, confident voices, and
generally didn't know much more than they read on the teleprompter.
We talked to a number of VCs, but eventually we ended up financing
our startup entirely with angel money. The main reason was that
we feared a brand-name VC firm would stick us with a newscaster as
part of the deal. That might have been ok if he was content to
limit himself to talking to the press, but what if he wanted to
have a say in running the company? That would have led to disaster,
because our software was so complex. We were a company whose whole
m.o. was to win through better technology. The strategic decisions
were mostly decisions about technology, and we didn't need any help
with those.
This was also one reason we didn't go public. Back in 1998 our CFO
tried to talk me into it. In those days you could go public as a
dogfood portal, so as a company with a real product and real revenues,
we might have done well. But I feared it would have meant taking
on a newscaster-- someone who, as they say, "can talk Wall Street's
language."
I'm happy to see Google is bucking that trend. They didn't talk
Wall Street's language when they did their IPO, and Wall Street
didn't buy. And now Wall Street is collectively kicking itself.
They'll pay attention next time. Wall Street learns new languages
fast when money is involved.
You have more leverage negotiating with VCs than you realize. The
reason is other VCs. I know a number of VCs now, and when you talk
to them you realize that it's a seller's market. Even now there
is too much money chasing too few good deals.
VCs form a pyramid. At the top are famous ones like Sequoia and
Kleiner Perkins, but beneath those are a huge number you've never
heard of. What they all have in common is that a dollar from them
is worth one dollar. Most VCs will tell you that they don't just
provide money, but connections and advice. If you're talking to
Vinod Khosla or John Doerr or Mike Moritz, this is true. But such
advice and connections can come very expensive. And as you go down
the food chain the VCs get rapidly
dumber. A few steps down from
the top you're basically talking to bankers who've picked up a few
new vocabulary words from reading Wired. (Does your product
use XML?) So I'd advise you to be skeptical about claims
of experience and connections. Basically, a VC is a source of
money. I'd be inclined to go with whoever offered the most money
the soonest with the least strings attached.
You may wonder how much to tell VCs. And you should, because some
of them may one day be funding your competitors. I think the best
plan is not to be overtly secretive, but not to tell them everything
either. After all, as most VCs say, they're more interested in the
people than the ideas. The main reason they want to talk about
your idea is to judge you, not the idea. So as long as you seem
like you know what you're doing, you can probably keep a few things
back from them. [7]
Talk to as many VCs as you can, even if you don't want their money,
because a) they may be on the board of someone who will buy you,
and b) if you seem impressive, they'll be discouraged from investing
in your competitors. The most efficient way to reach VCs, especially
if you only want them to know about you and don't want their money,
is at the conferences that are occasionally organized for startups
to present to them.
Not Spending It
When and if you get an infusion of real money from investors, what
should you do with it? Not spend it, that's what. In nearly every
startup that fails, the proximate cause is running out of money.
Usually there is something deeper wrong. But even a proximate cause
of death is worth trying hard to avoid.
During the Bubble many startups tried to "get big fast." Ideally
this meant getting a lot of customers fast. But it was easy for
the meaning to slide over into hiring a lot of people fast.
Of the two versions, the one where you get a lot of customers fast
is of course preferable. But even that may be overrated. The idea
is to get there first and get all the users, leaving none for
competitors. But I think in most businesses the advantages of being
first to market are not so overwhelmingly great. Google is again
a case in point. When they appeared it seemed as if search was a
mature market, dominated by big players who'd spent millions to
build their brands: Yahoo, Lycos, Excite, Infoseek, Altavista,
Inktomi. Surely 1998 was a little late to arrive at the party.
But as the founders of Google knew, brand is worth next to nothing
in the search business. You can come along at any point and make
something better, and users will gradually seep over to you. As
if to emphasize the point, Google never did any advertising. They're
like dealers; they sell the stuff, but they know better than to use
it themselves.
The competitors Google buried would have done better to spend those
millions improving their software. Future startups should learn
from that mistake. Unless you're in a market where products are
as undifferentiated as cigarettes or vodka or laundry detergent,
spending a lot on brand advertising is a sign of breakage. And few
if any Web businesses are so undifferentiated. The dating sites
are running big ad campaigns right now, which is all the
more evidence they're ripe for the picking. (Fee, fie, fo, fum, I
smell a company run by marketing guys.)
We were compelled by circumstances to grow slowly, and in retrospect
it was a good thing. The founders all learned to do every job in
the company. As well as writing software, I had to do sales and
customer support. At sales I was not very good. I was persistent,
but I didn't have the smoothness of a good salesman. My message
to potential customers was: you'd be stupid not to sell online, and
if you sell online you'd be stupid to use anyone else's software.
Both statements were true, but that's not the way to convince people.
I was great at customer support though. Imagine talking to a
customer support person who not only knew everything about the
product, but would apologize abjectly if there was a bug, and then
fix it immediately, while you were on the phone with them. Customers
loved us. And we loved them, because when you're growing slow by
word of mouth, your first batch of users are the ones who were smart
enough to find you by themselves. There is nothing more valuable,
in the early stages of a startup, than smart users. If you listen
to them, they'll tell you exactly how to make a winning product.
And not only will they give you this advice for free, they'll pay
you.
We officially launched in early 1996. By the end of that year we
had about 70 users. Since this was the era of "get big fast," I
worried about how small and obscure we were. But in fact we were
doing exactly the right thing. Once you get big (in users or
employees) it gets hard to change your product. That year was
effectively a laboratory for improving our software. By the end
of it, we were so far ahead of our competitors that they never had
a hope of catching up. And since all the hackers had spent many
hours talking to users, we understood online commerce way better
than anyone else.
That's the key to success as a startup. There is nothing more
important than understanding your business. You might think that
anyone in a business must, ex officio, understand it. Far from it.
Google's secret
weapon was simply that they understood search. I was working for
Yahoo when Google appeared, and Yahoo didn't understand search. I
know because I once tried to convince the powers that be that we
had to make search better, and I got in reply what was then the
party line about it: that Yahoo was no longer a mere "search engine."
Search was now only a small percentage of our page views, less than
one month's growth, and now that we were established as a "media
company," or "portal," or whatever we were, search could safely be
allowed to wither and drop off, like an umbilical cord.
Well, a small fraction of page views they may be, but they are an
important fraction, because they are the page views that Web sessions
start with. I think Yahoo gets that now.
Google understands a few other things most Web companies still
don't. The most important is that you should put users before
advertisers, even though the advertisers are paying and users aren't.
One of my favorite bumper stickers reads "if the people lead, the
leaders will follow." Paraphrased for the Web, this becomes "get
all the users, and the advertisers will follow." More generally,
design your product to please users first, and then think about how
to make money from it. If you don't put users first, you leave a
gap for competitors who do.
To make something users love, you have to understand them. And the
bigger you are, the harder that is. So I say "get big slow." The
slower you burn through your funding, the more time you have to
learn.
The other reason to spend money slowly is to encourage a culture
of cheapness. That's something Yahoo did understand. David Filo's
title was "Chief Yahoo," but he was proud that his unofficial title
was "Cheap Yahoo." Soon after we arrived at Yahoo, we got an email
from Filo, who had been crawling around our directory hierarchy,
asking if it was really necessary to store so much of our data on
expensive RAID drives. I was impressed by that. Yahoo's market
cap then was already in the billions, and they were still worrying
about wasting a few gigs of disk space.
When you get a couple million dollars from a VC firm, you tend to
feel rich. It's important to realize you're not. A rich company
is one with large revenues. This money isn't revenue. It's money
investors have given you in the hope you'll be able to generate
revenues. So despite those millions in the bank, you're still poor.
For most startups the model should be grad student, not law firm.
Aim for cool and cheap, not expensive and impressive. For us the
test of whether a startup understood this was whether they had Aeron
chairs. The Aeron came out during the Bubble and was very popular
with startups. Especially the type, all too common then, that was
like a bunch of kids playing house with money supplied by VCs. We
had office chairs so cheap that the arms all fell off. This was
slightly embarrassing at the time, but in retrospect the grad-studenty
atmosphere of our office was another of those things we did right
without knowing it.
Our offices were in a wooden triple-decker in Harvard Square. It
had been an apartment until about the 1970s, and there was still a
claw-footed bathtub in the bathroom. It must once have been inhabited
by someone fairly eccentric, because a lot of the chinks in the
walls were stuffed with aluminum foil, as if to protect against
cosmic rays. When eminent visitors came to see us, we were a bit
sheepish about the low production values. But in fact that place
was the perfect space for a startup. We felt like our role was to
be impudent underdogs instead of corporate stuffed shirts, and that
is exactly the spirit you want.
An apartment is also the right kind of place for developing software.
Cube farms suck for that, as you've probably discovered if you've
tried it. Ever notice how much easier it is to hack at home than
at work? So why not make work more like home?
When you're looking for space for a startup, don't feel that it has
to look professional. Professional means doing good work, not
elevators and glass walls. I'd advise most startups to avoid
corporate space at first and just rent an apartment. You want to
live at the office in a startup, so why not have a place designed
to be lived in as your office?
Besides being cheaper and better to work in, apartments tend to be
in better locations than office buildings. And for a startup
location is very important. The key to productivity is for people
to come back to work after dinner. Those hours after the phone
stops ringing are by far the best for getting work done. Great
things happen when a group of employees go out to dinner together,
talk over ideas, and then come back to their offices to implement
them. So you want to be in a place where there are a lot of
restaurants around, not some dreary office park that's a wasteland
after 6:00 PM. Once a company shifts over into the model where
everyone drives home to the suburbs for dinner, however late, you've
lost something extraordinarily valuable. God help you if you
actually start in that mode.
If I were going to start a startup today, there are only three
places I'd consider doing it: on the Red Line near Central, Harvard,
or Davis Squares (Kendall is too sterile); in Palo Alto on University
or California Aves; and in Berkeley immediately north or south of
campus. These are the only places I know that have the right kind
of vibe.
The most important way to not spend money is by not hiring people.
I may be an extremist, but I think hiring people is the worst thing
a company can do. To start with, people are a recurring expense,
which is the worst kind. They also tend to cause you to grow out
of your space, and perhaps even move to the sort of uncool office
building that will make your software worse. But worst of all,
they slow you down: instead of sticking your head in someone's
office and checking out an idea with them, eight people have to
have a meeting about it. So the fewer people you can hire, the
better.
During the Bubble a lot of startups had the opposite policy. They
wanted to get "staffed up" as soon as possible, as if you couldn't
get anything done unless there was someone with the corresponding
job title. That's big company thinking. Don't hire people to fill
the gaps in some a priori org chart. The only reason to hire someone
is to do something you'd like to do but can't.
If hiring unnecessary people is expensive and slows you down, why
do nearly all companies do it? I think the main reason is that
people like the idea of having a lot of people working for them.
This weakness often extends right up to the CEO. If you ever end
up running a company, you'll find the most common question people
ask is how many employees you have. This is their way of weighing
you. It's not just random people who ask this; even reporters do.
And they're going to be a lot more impressed if the answer is a
thousand than if it's ten.
This is ridiculous, really. If two companies have the same revenues,
it's the one with fewer employees that's more impressive. When
people used to ask me how many people our startup had, and I answered
"twenty," I could see them thinking that we didn't count for much.
I used to want to add "but our main competitor, whose ass we regularly
kick, has a hundred and forty, so can we have credit for the larger
of the two numbers?"
As with office space, the number of your employees is a choice
between seeming impressive, and being impressive. Any of you who
were nerds in high school know about this
choice. Keep doing it when you start a company.
Should You?
But should you start a company? Are you the right sort of person
to do it? If you are, is it worth it?
More people are the right sort of person to start a startup than
realize it. That's the main reason I wrote this. There could be
ten times more startups than there are, and that would probably be
a good thing.
I was, I now realize, exactly the right sort of person to start a
startup. But the idea terrified me at first. I was forced into
it because I was a Lisp hacker. The company
I'd been consulting for seemed to be running into trouble, and there
were not a lot of other companies using Lisp. Since I couldn't
bear the thought of programming in another language (this was 1995,
remember, when "another language" meant C++) the only option seemed
to be to start a new company using Lisp.
I realize this sounds far-fetched, but if you're a Lisp hacker
you'll know what I mean. And if the idea of starting a startup
frightened me so much that I only did it out of necessity, there
must be a lot of people who would be good at it but who are too
intimidated to try.
So who should start a startup? Someone who is a good hacker, between
about 23 and 38, and who wants to solve the money problem in one
shot instead of getting paid gradually over a conventional working
life.
I can't say precisely what a good hacker is. At a first rate
university this might include the top half of computer science
majors. Though of course you don't have to be a CS major to be a
hacker; I was a philosophy major in college.
It's hard to tell whether you're a good hacker, especially when
you're young. Fortunately the process of starting startups tends
to select them automatically. What drives people to start startups
is (or should be) looking at existing technology and thinking, don't
these guys realize they should be doing x, y, and z? And that's
also a sign that one is a good hacker.
I put the lower bound at 23 not because there's something that
doesn't happen to your brain till then, but because you need to see
what it's like in an existing business before you try running your
own. The business doesn't have to be a startup. I spent a year
working for a software company to pay off my college loans. It was
the worst year of my adult life, but I learned, without realizing
it at the time, a lot of valuable lessons about the software business.
In this case they were mostly negative lessons: don't have a lot
of meetings; don't have chunks of code that multiple people own;
don't have a sales guy running the company; don't make a high-end
product; don't let your code get too big; don't leave finding bugs
to QA people; don't go too long between releases; don't isolate
developers from users; don't move from Cambridge to Route 128; and
so on. [8] But negative lessons are just as valuable as positive
ones. Perhaps even more valuable: it's hard to repeat a brilliant
performance, but it's straightforward to avoid errors. [9]
The other reason it's hard to start a company before 23 is that
people won't take you seriously. VCs won't trust you, and will try
to reduce you to a mascot as a condition of funding. Customers
will worry you're going to flake out and leave them stranded. Even
you yourself, unless you're very unusual, will feel your age to
some degree; you'll find it awkward to be the boss of someone much
older than you, and if you're 21, hiring only people younger rather
limits your options.
Some people could probably start a company at 18 if they wanted to.
Bill Gates was 19 when he and Paul Allen started Microsoft. (Paul
Allen was 22, though, and that probably made a difference.) So if
you're thinking, I don't care what he says, I'm going to start a
company now, you may be the sort of person who could get away with
it.
The other cutoff, 38, has a lot more play in it. One reason I put
it there is that I don't think many people have the physical stamina
much past that age. I used to work till 2:00 or 3:00 AM every
night, seven days a week. I don't know if I could do that now.
Also,
startups are a big risk financially. If you try something that
blows up and leaves you broke at 26, big deal; a lot of 26 year
olds are broke. By 38 you can't take so many risks-- especially
if you have kids.
My final test may be the most restrictive. Do you actually want
to start a startup? What it amounts to, economically, is compressing
your working life into the smallest possible space. Instead of
working at an ordinary rate for 40 years, you work like hell for
four. And maybe end up with nothing-- though in that case it
probably won't take four years.
During this time you'll do little but work, because when you're not
working, your competitors will be. My only leisure activities were
running, which I needed to do to keep working anyway, and about
fifteen minutes of reading a night. I had a girlfriend for a total
of two months during that three year period. Every couple weeks I
would take a few hours off to visit a used bookshop or go to a
friend's house for dinner. I went to visit my family twice.
Otherwise I just worked.
Working was often fun, because the people I worked with were some
of my best friends. Sometimes it was even technically interesting.
But only about 10% of the time. The best I can say for the other
90% is that some of it is funnier in hindsight than it seemed then.
Like the time the power went off in Cambridge for about six hours,
and we made the mistake of trying to start a gasoline powered
generator inside our offices. I won't try that again.
I don't think the amount of bullshit you have to deal with in a
startup is more than you'd endure in an ordinary working life. It's
probably less, in fact; it just seems like a lot because it's
compressed into a short period. So mainly what a startup buys you
is time. That's the way to think about it if you're trying to
decide whether to start one. If you're the sort of person who would
like to solve the money problem once and for all instead of working
for a salary for 40 years, then a startup makes sense.
For a lot of people the conflict is between startups and graduate
school. Grad students are just the age, and just the sort of people,
to start software startups. You may worry that if you do you'll
blow your chances of an academic career. But it's possible to be
part of a startup and stay in grad school, especially at first.
Two of our three original hackers were in grad school the whole
time, and both got their degrees.
There are few sources of energy
so powerful as a procrastinating grad student.
If you do have to
leave grad school, in the worst case it won't be for too long. If
a startup fails, it will probably fail quickly enough that you can
return to academic life. And if it succeeds, you may find you no
longer have such a burning desire to be an assistant professor.
If you want to do it, do it. Starting a startup is not the great
mystery it seems from outside. It's not something you have to know
about "business" to do. Build something users love, and spend less
than you make. How hard is that?
Notes
[1] Google's revenues are about two billion a year, but half comes
from ads on other sites.
[2] One advantage startups have over established companies is that
there are no discrimination laws about starting businesses. For
example, I would be reluctant to start a startup with a woman
who had small children, or was likely to have them soon. But you're
not allowed to ask prospective employees if they plan to have kids
soon. Believe it or not, under current US law, you're not even
allowed to discriminate on the basis of intelligence. Whereas when
you're starting a company, you can discriminate on any basis you
want about who you start it with.
[3] Learning to hack is a lot cheaper than business school, because
you can do it mostly on your own. For the price of a Linux box, a
copy of K&R, and a few hours of advice from your neighbor's fifteen
year old son, you'll be well on your way.
[4] Corollary: Avoid starting a startup to sell things to the biggest
company of all, the government. Yes, there are lots of opportunities
to sell them technology. But let someone else start those startups.
[5] A friend who started a company in Germany told me they do care
about the paperwork there, and that there's more of it. Which helps
explain why there are not more startups in Germany.
[6] At the seed stage our valuation was in principle $100,000, because
Julian got 10% of the company. But this is a very misleading number,
because the money was the least important of the things Julian gave us.
[7] The same goes for companies that seem to want to acquire you.
There will be a few that are only pretending to in order to pick
your brains. But you can never tell for sure which these are, so
the best approach is to seem entirely open, but to fail to mention
a few critical technical secrets.
[8] I was as bad an employee as this place was a company. I
apologize to anyone who had to work with me there.
[9] You could probably write a book about how to succeed in business
by doing everything in exactly the opposite way from the DMV.
Thanks to Trevor Blackwell, Sarah Harlin, Jessica Livingston,
and Robert Morris for reading drafts of this essay, and to Steve
Melendez and Gregory Price for inviting me to speak.

March 2005
(Parts of this essay began as replies to students who wrote to
me with questions.)
Recently I've had several emails from computer science
undergrads asking what to do in college. I might not
be the best source of advice, because I was a philosophy major in
college. But I took so many CS classes that most CS majors thought
I was one. I was certainly a hacker, at least.
Hacking
What should you do in college to become a
good hacker? There are two
main things you can do: become very good at programming, and learn
a lot about specific, cool problems. These turn out to be equivalent,
because each drives you to do the other.
The way to be good at programming is to work (a) a lot (b) on hard
problems. And the way to make yourself work on hard problems is
to work on some very engaging project.
Odds are this project won't be a class assignment. My friend Robert
learned a lot by writing network software when he was an
undergrad. One of his projects was to connect Harvard to the
Arpanet; it had been one of the original nodes, but by 1984 the
connection had died. [1] Not only was this
work not for a class, but because he spent all his time on it
and neglected his studies, he was kicked out of
school for a year. [2] It all evened out in the end, and now he's
a professor at MIT. But you'll probably be happier if you don't
go to that extreme; it caused him a lot of worry at the time.
Another way to be good at programming is to find other people who
are good at it, and learn what they know. Programmers tend to sort
themselves into tribes according to the type of work they do and
the tools they use, and some tribes are
smarter than others. Look
around you and see what the smart people seem to be working on;
there's usually a reason.
Some of the smartest people around you are professors. So one way
to find interesting work is to volunteer as a research assistant.
Professors are especially interested in people who can solve tedious
system-administration type problems for them, so that is a way to
get a foot in the door. What they fear are
flakes and resume padders. It's all too
common for an assistant to result in a net increase in work. So
you have to make it clear you'll mean a net decrease.
Don't be put off if they say no. Rejection is almost always less
personal than the rejectee imagines. Just move on to the next.
(This applies to dating too.)
Beware, because although most professors are smart, not all of them
work on interesting stuff. Professors have to publish novel results
to advance their careers, but there is more competition in more
interesting areas of research. So what less ambitious professors
do is turn out a series of papers whose conclusions are novel because
no one else cares about them. You're better off avoiding these.
I never worked as a research assistant, so I feel a bit dishonest
recommending that route. I learned to program by writing stuff of
my own, particularly by trying to reverse-engineer Winograd's
SHRDLU. I was as obsessed with that program as a mother with a new baby.
Whatever the disadvantages of working by yourself, the advantage
is that the project is all your own. You never have to compromise
or ask anyone's permission, and if you have a new idea you can just
sit down and start implementing it.
In your own projects you don't have to worry about novelty (as
professors do) or profitability (as businesses do). All that matters
is how hard the project is technically, and that has no correlation
to the nature of the application. "Serious" applications like
databases are often trivial and dull technically (if you ever suffer
from insomnia, try reading the technical literature about databases)
while "frivolous" applications like games are often very sophisticated.
I'm sure there are game companies out there working on products
with more intellectual content than the research at the
bottom nine tenths of university CS departments.
If I were in college now I'd probably work on
graphics: a network game, for example, or a tool for 3D animation.
When I was an undergrad there weren't enough cycles around to make
graphics interesting, but it's hard to imagine anything more fun
to work on now.
Math
When I was in college, a lot of the professors believed (or at least
wished) that
computer science was a branch of math. This idea was
strongest at Harvard, where there wasn't even a CS major till the
1980s; till then one had to major in applied math. But it was
nearly as bad at Cornell. When I told the fearsome Professor Conway
that I was interested in AI (a hot topic then), he told me I should
major in math. I'm still not sure whether he thought AI required
math, or whether he thought AI was nonsense and that majoring in
something rigorous would cure me of such stupid ambitions.
In fact, the amount of math you need as a hacker is a lot less
than most university departments like to admit. I don't think you
need much more than high school math plus a few concepts from the
theory of computation. (You have to know what an n^2 algorithm is
if you want to avoid writing them.) Unless you're planning to write
math applications, of course. Robotics, for example, is all math.
But while you don't literally need math for most kinds of hacking,
in the sense of knowing 1001 tricks for differentiating formulas,
math is very much worth studying for its own sake. It's a
valuable source of metaphors for almost any kind of work.[3] I wish
I'd studied more math in college for that reason.
Like a lot of people, I was mathematically abused as a child. I
learned to think of math as a collection of formulas that were
neither beautiful nor had any relation to my life (despite attempts
to translate them into "word problems"), but had to be memorized
in order to do well on tests.
One of the most valuable things you could do in college would be
to learn what math is really about. This may not be easy, because
a lot of good mathematicians are bad teachers. And while there are
many popular books on math, few seem good. The best I can think
of are W. W. Sawyer's. And of course Euclid. [4]
Everything
Thomas Huxley said "Try to learn something about everything and
everything about something." Most universities aim at this
ideal.
But what's everything? To me it means, all that people
learn in the course of working honestly on hard problems. All such
work tends to be related, in that ideas and techniques from one
field can often be transplanted successfully to others. Even others
that seem quite distant. For example, I write
essays the same way
I write software: I sit down and blow out a lame version 1 as fast
as I can type, then spend several weeks rewriting it.
Working on hard problems is not, by itself, enough. Medieval
alchemists were working on a hard problem, but their approach was
so bogus that there was little
to learn from studying it, except possibly about people's ability
to delude themselves. Unfortunately the sort of AI I was trying
to learn in college had the same flaw: a very hard problem, blithely
approached with hopelessly inadequate techniques. Bold? Closer
to fraudulent.
The social sciences are also fairly bogus, because they're so much
influenced by intellectual fashions. If a
physicist met a colleague
from 100 years ago, he could teach him some new things; if a psychologist
met a colleague from 100 years ago, they'd just get into an
ideological argument.
Yes, of course, you'll learn something by taking a
psychology class. The point is, you'll learn more by taking
a class in another department.
The worthwhile departments, in my opinion, are math, the hard
sciences, engineering, history (especially economic and social
history, and the history of science), architecture, and the classics.
A survey course in art history may be worthwhile. Modern literature
is important, but the way to learn about it is just to read. I
don't know enough about music to say.
You can skip the social sciences, philosophy, and the various
departments created recently in response to political pressures.
Many of these fields talk about important problems, certainly. But
the way they talk about them is useless. For example, philosophy
talks, among other things, about our obligations to one another;
but you can learn more about this from a wise grandmother or E. B.
White than from an academic philosopher.
I speak here from experience. I should probably have been offended
when people laughed at Clinton for saying "It depends on what the
meaning of the word 'is' is." I took about five classes in college
on what the meaning of "is" is.
Another way to figure out which fields are worth studying is to
create the dropout graph. For example, I know many people
who switched from math to computer science because they found math
too hard, and no one who did the opposite. People don't do hard
things gratuitously; no one will work on a harder problem unless
it is proportionately (or at least log(n)) more rewarding. So
probably math is more worth studying than computer science. By
similar comparisons you can make a graph of all the departments in
a university. At the bottom you'll find the subjects with least
intellectual content.
If you use this method, you'll get roughly the same answer I just
gave.
Language courses are an anomaly. I think they're better considered
as extracurricular activities, like pottery classes. They'd be far
more useful when combined with some time living in a country where
the language is spoken. On a whim I studied Arabic as a freshman.
It was a lot of work, and the only lasting benefits were a weird
ability to identify semitic roots and some insights into how people
recognize words.
Studio art and creative writing courses are wildcards. Usually
you don't get taught much: you just work (or don't work) on whatever
you want, and then sit around offering "crits" of one another's
creations under the vague supervision of the teacher. But writing and
art are both very hard problems that (some) people work honestly
at, so they're worth doing, especially if you can find a good
teacher.
Jobs
Of course college students have to think about more than just
learning. There are also two practical problems to consider: jobs,
and graduate school.
In theory a liberal education is not supposed to supply job training.
But everyone knows this is a bit of a fib. Hackers at every college
learn practical skills, and not by accident.
What you should learn to get a job depends on the kind you want.
If you want to work in a big company, learn how to hack
Blub on
Windows. If you want to work at a cool little company or research
lab, you'll do better to learn Ruby on Linux. And if you want to
start your own company, which I think will be more and more common,
master the most powerful tools you can find, because you're going
to be in a race against your competitors, and they'll be your horse.
There is not a direct correlation between the skills you should
learn in college and those you'll use in a job. You should aim
slightly high in college.
In workouts a football player may bench press 300 pounds, even
though he may never have to exert anything like that much force in
the course of a game. Likewise, if your professors try to make you
learn stuff that's more advanced than you'll need in a job, it may
not just be because they're academics, detached from the real world.
They may be trying to make you lift weights with your brain.
The programs you write in classes differ in three critical ways
from the ones you'll write in the real world: they're small; you
get to start from scratch; and the problem is usually artificial
and predetermined. In the real world, programs are bigger, tend
to involve existing code, and often require you to figure out what
the problem is before you can solve it.
You don't have to wait to leave (or even enter) college to learn
these skills. If you want to learn how to deal with existing code,
for example, you can contribute to open-source projects. The sort
of employer you want to work for will be as impressed by that as
good grades on class assignments.
In existing open-source projects you don't get much practice at
the third skill, deciding what problems to solve. But there's
nothing to stop you starting new projects of your own. And good
employers will be even more impressed
with that.
What sort of problem should you try to solve? One way to answer
that is to ask what you need as a user. For example, I stumbled
on a good algorithm for spam filtering because I wanted to stop
getting spam. Now what I wish I had was a mail reader that somehow
prevented my inbox from filling up. I tend to use my inbox as a
todo list. But that's like using a screwdriver to open
bottles; what one really wants is a bottle opener.
Grad School
What about grad school? Should you go? And how do you get into a
good one?
In principle, grad school is professional training in research, and
you shouldn't go unless you want to do research as a career. And
yet half the people who get PhDs in CS don't go into research.
I didn't go to grad school to become a professor. I went because
I wanted to learn more.
So if you're mainly interested in hacking and you go to grad school,
you'll find a lot of other people who are similarly out of their
element. And if half the people around you are out of their element in the
same way you are, are you really out of your element?
There's a fundamental problem in "computer science," and it surfaces
in situations like this. No one is sure what "research" is supposed to be.
A lot
of research is hacking that had to be crammed into the form of an
academic paper to yield one more quantum of publication.
So it's kind of misleading to ask whether you'll be at home in grad
school, because very few people are quite at home in computer
science. The whole field is uncomfortable in its own skin. So
the fact that you're mainly interested in hacking shouldn't deter
you from going to grad school. Just be warned you'll have to do a lot of stuff
you don't like.
Number one will be your dissertation. Almost everyone hates their
dissertation by the time they're done with it. The
process inherently tends to produce an unpleasant result, like a cake made out
of whole wheat flour and baked for twelve hours. Few dissertations
are read with pleasure, especially by their authors.
But thousands before you have suffered through writing a dissertation.
And aside from that, grad school is close to paradise. Many people
remember it as the happiest time of their lives. And nearly all
the rest, including me, remember it as a period that would have
been, if they hadn't had to write a dissertation. [5]
The danger with grad school is that you don't see the scary part
upfront. PhD programs start out as college part 2, with several
years of classes. So by the time you face the horror of writing a
dissertation, you're already several years in. If you quit now,
you'll be a grad-school dropout, and you probably won't like that
idea. When Robert got kicked out of grad school for writing the
Internet worm of 1988, I envied him enormously for finding a way out
without the stigma of failure.
On the whole, grad school is probably better than most alternatives. You meet a
lot of smart people, and your glum procrastination will at least
be a powerful common bond. And of course you have a PhD at the
end. I forgot about that. I suppose that's worth something.
The greatest advantage of a PhD (besides being the union card of
academia, of course) may be that it gives you some baseline confidence.
For example, the Honeywell thermostats in my house have the most
atrocious UI. My mother, who has the same model, diligently spent
a day reading the user's manual to learn how to operate hers. She
assumed the problem was with her. But I can think to myself "If
someone with a PhD in computer science can't understand this
thermostat, it must be badly
designed."
If you still want to go to grad school after this equivocal
recommendation, I can give you solid advice about how to get in.
A lot of my friends are CS professors now, so I have the inside
story about admissions. It's quite different from college. At
most colleges, admissions officers decide who gets in. For PhD
programs, the professors do. And they try to do
it well, because the people they admit are going to be working for
them.
Apparently only recommendations really matter at the best schools.
Standardized tests count for nothing, and grades for little. The
essay is mostly an opportunity to disqualify yourself by saying
something stupid. The only thing professors
trust is recommendations, preferably from people they know. [6]
So if you want to get into a PhD program, the key is to impress
your professors. And from my friends who are professors I know
what impresses them: not merely trying to impress them. They're
not impressed by students who get good grades or want to be their
research assistants so they can get into grad school. They're
impressed by students who get good grades and want to be their
research assistants because they're genuinely interested in the
topic.
So the best thing you can do in college, whether you want to get
into grad school or just be good at hacking, is figure out what you
truly like. It's hard to trick professors into letting you into
grad school, and impossible to trick problems into letting you solve
them. College is where faking stops working. From this point,
unless you want to go work for a big company, which is like reverting
to high school, the only way forward is through doing what you
love.
Notes
[1] No one seems to have minded, which shows how unimportant
the Arpanet (which became the Internet) was as late as
1984.
[2] This is why, when I became an employer, I didn't care
about GPAs. In fact, we actively sought out people
who'd failed out of school. We once put up posters around Harvard
saying "Did you just get kicked out for doing badly in your classes
because you spent all your time working on some project of your
own? Come work for us!" We managed to find a kid who had been,
and he was a great hacker.
When Harvard kicks undergrads out for a year, they have to get jobs.
The idea is to show them how awful the real world is, so they'll
understand how lucky they are to be in college. This plan backfired
with the guy who came to work for us, because he had more fun than
he'd had in school, and made more that year from stock options than
any of his professors did in salary. So instead of crawling back
repentant at the end of the year, he took another year off and went
to Europe. He did eventually graduate at about 26.
[3] Eric Raymond says the best metaphors for hackers are
in set theory, combinatorics, and graph theory.
Trevor Blackwell reminds you to take math classes intended for math majors.
"'Math for engineers' classes sucked mightily. In fact any 'x for
engineers' sucks, where x includes math, law, writing and visual
design."
[4] Other highly recommended books: What is Mathematics?, by
Courant and Robbins; Geometry and the Imagination by Hilbert and
Cohn-Vossen.
And for those interested in graphic design,
Byrne's Euclid.
[5] If you wanted to have the perfect life, the thing to do would
be to go to grad school, secretly write your dissertation in the
first year or two, and then just enjoy yourself for the next three
years, dribbling out a chapter at a time. This prospect will make
grad students' mouths water, but I know of no one who's had the
discipline to pull it off.
[6] One professor friend says that 15-20% of the grad students they
admit each year are "long shots." But what he means by long shots
are people whose applications are perfect in every way, except
that no one on the admissions committee knows the professors who
wrote the recommendations.
So if you want to get into
grad school in the sciences, you need to go to college somewhere with
real research professors. Otherwise you'll seem a risky bet
to admissions committees, no matter how good you are.
Which implies
a surprising but apparently inevitable consequence:
little liberal arts colleges are doomed.
Most smart
high school kids at least consider going into the sciences, even
if they ultimately choose not to.
Why go to a college that limits their options?
Thanks to Trevor Blackwell, Alex Lewin, Jessica Livingston,
Robert Morris, Eric
Raymond, and several
anonymous CS professors
for reading drafts of this, and to the students whose questions
began it.
April 2005
This summer, as an
experiment, some
friends and I are giving seed
funding to a bunch of new startups. It's an experiment because
we're prepared to fund younger founders than most investors would.
That's why we're doing it during the summer—so even college
students can participate.
We know from Google and Yahoo that grad students can start successful
startups. And we know from experience that some undergrads are as
capable as most grad students. The accepted age for startup founders
has been creeping downward. We're trying to find the lower bound.
The deadline has now passed, and we're sifting through 227 applications.
We expected to divide them into two categories, promising
and unpromising. But we soon saw we needed a third: promising
people with unpromising ideas.
[1]
The Artix Phase
We should have expected this. It's very common for a group of
founders to go through one lame idea before realizing that a startup
has to make something people will pay for. In fact, we ourselves
did.
Viaweb wasn't the first startup Robert Morris and I started. In
January 1995, we and a couple friends started a company called
Artix. The plan was to put art galleries on the Web. In retrospect,
I wonder how we could have wasted our time on anything so stupid.
Galleries are not especially excited about being on
the Web even now, ten years later. They don't want to have their
stock visible to any random visitor, like an antique store.
[2]
Besides which, art dealers are the most technophobic people on
earth. They didn't become art dealers after a difficult choice
between that and a career in the hard sciences. Most of them had
never seen the Web before we came to tell them why they should be
on it. Some didn't even have computers. It doesn't do justice to
the situation to describe it as a hard sell; we soon sank
to building sites for free, and it was hard to convince galleries
even to do that.
Gradually it dawned on us that
instead of trying to make Web sites for
people who didn't want them, we could make sites for
people who did. In fact, software that would let people who wanted
sites make their own. So we ditched Artix and
started a new company, Viaweb, to make software for building online stores.
That one succeeded.
We're in good company here. Microsoft was not the first company
Paul Allen and Bill Gates started either. The first was called
Traf-o-data. It does not seem to have done as well as Micro-soft.
In Robert's defense, he was skeptical about Artix. I dragged him
into it.
[3]
But there were moments when he was optimistic. And
if we, who were 29 and 30 at the time, could get excited about such
a thoroughly boneheaded idea, we should not be surprised that hackers
aged 21 or 22 are pitching us ideas with little hope of making money.
The Still Life Effect
Why does this happen? Why do good hackers have bad business ideas?
Let's look at our case. One reason we had such a lame idea was
that it was the first thing we thought of. I was in New York trying
to be a starving artist at the time (the starving part is actually
quite easy), so I was haunting galleries anyway. When I learned
about the Web, it seemed natural to mix the two. Make Web sites
for galleries—that's the ticket!
If you're going to spend years working on something, you'd think
it might be wise to spend at least a couple days considering different
ideas, instead of going with the first that comes into your head.
You'd think. But people don't. In fact, this is a constant problem
when you're painting still lifes. You plonk down a bunch of stuff
on a table, and maybe spend five or ten minutes rearranging it to
look interesting. But you're so impatient to get started painting
that ten minutes of rearranging feels very long. So you start
painting. Three days later, having spent twenty hours staring at
it, you're kicking yourself for having set up such an awkward and
boring composition, but by then it's too late.
Part of the problem is that big projects tend to grow out of small
ones. You set up a still life to make a quick sketch when you have
a spare hour, and days later you're still working on it. I once
spent a month painting three versions of a still life I set up in
about four minutes. At each point (a day, a week, a month) I thought
I'd already put in so much time that it was too late to change.
So the biggest cause of bad ideas is the still life effect: you
come up with a random idea, plunge into it, and then at each point
(a day, a week, a month) feel you've put so much time into it that
this must be the idea.
How do we fix that? I don't think we should discard plunging.
Plunging into an idea is a good thing. The solution is at the other
end: to realize that having invested time in something doesn't make
it good.
This is clearest in the case of names. Viaweb was originally
called Webgen, but we discovered someone else had a product called
that. We were so attached to our name that we offered him 5%
of the company if he'd let us have it. But he wouldn't, so
we had to think of another.
[4]
The best we could do was Viaweb,
which we disliked at first. It was like having a new mother. But
within three days we loved it, and Webgen sounded lame and
old-fashioned.
If it's hard to change something so simple as a name, imagine
how hard it is to garbage-collect an idea. A name only has one
point of attachment into your head. An idea for a company gets
woven into your thoughts. So you must consciously discount for
that. Plunge in, by all means, but remember later to look at your
idea in the harsh light of morning and ask: is this something people
will pay for? Is this, of all the things we could make, the thing
people will pay most for?
Muck
The second mistake we made with Artix is also very common. Putting
galleries on the Web seemed cool.
One of the most valuable things my father taught me is an old
Yorkshire saying: where there's muck, there's brass. Meaning that
unpleasant work pays. And more to the point here, vice versa. Work
people like doesn't pay well, for reasons of supply and demand.
The most extreme case is developing programming languages, which
doesn't pay at all, because people like it so much they do it for
free.
When we started Artix, I was still ambivalent about business. I
wanted to keep one foot in the art world. Big, big, mistake. Going
into business is like a hang-glider launch: you'd better do it
wholeheartedly, or not at all. The purpose of a company, and a
startup especially, is to make money. You can't have divided
loyalties.
Which is not to say that you have to do the most disgusting sort
of work, like spamming, or starting a company whose only purpose
is patent litigation. What I mean is, if you're starting a company
that will do something cool, the aim had better be to make money
and maybe be cool, not to be cool and maybe make money.
It's hard enough to make money that you can't do it by accident.
Unless it's your first priority, it's unlikely to happen at all.
Hyenas
When I probe our motives with Artix, I see a third mistake: timidity.
If you'd proposed at the time that we go into the e-commerce business,
we'd have found the idea terrifying. Surely a field like that would
be dominated by fearsome startups with five million dollars of VC
money each. Whereas we felt pretty sure that we could hold our own
in the slightly less competitive business of generating Web sites
for art galleries.
We erred ridiculously far on the side of safety. As it turns out,
VC-backed startups are not that fearsome. They're too busy trying
to spend all that
money to get software written. In 1995, the
e-commerce business was very competitive as measured in press
releases, but not as measured in software. And really it never
was. The big fish like Open Market (rest their souls) were just
consulting companies pretending to be product companies
[5], and
the offerings at our end of the market were a couple hundred lines
of Perl scripts. Or could have been implemented as a couple hundred
lines of Perl; in fact they were probably tens of thousands of lines
of C++ or Java. Once we actually took the plunge into e-commerce,
it turned out to be surprisingly easy to compete.
So why were we afraid? We felt we were good at programming, but
we lacked confidence in our ability to do a mysterious, undifferentiated
thing we called "business." In fact there is no such thing as
"business." There's selling, promotion, figuring out what people
want, deciding how much to charge, customer support, paying your
bills, getting customers to pay you, getting incorporated, raising
money, and so on. And the combination is not as hard as it seems,
because some tasks (like raising money and getting incorporated)
are an O(1) pain in the ass, whether you're big or small, and others
(like selling and promotion) depend more on energy and imagination
than any kind of special training.
Artix was like a hyena, content to survive on carrion because we
were afraid of the lions. Except the lions turned out not to have
any teeth, and the business of putting galleries online barely
qualified as carrion.
A Familiar Problem
Sum up all these sources of error, and it's no wonder we had such
a bad idea for a company. We did the first thing we thought of;
we were ambivalent about being in business at all; and we deliberately
chose an impoverished market to avoid competition.
Looking at the applications for the Summer Founders Program, I see
signs of all three. But the first is by far the biggest problem.
Most of the groups applying have not stopped to ask: of all the
things we could do, is this the one with the best chance of
making money?
If they'd already been through their Artix phase, they'd have learned
to ask that. After the reception we got from art dealers, we were
ready to. This time, we thought, let's make something people want.
Reading the Wall Street Journal for a week should give anyone
ideas for two or three new startups. The articles are full of
descriptions of problems that need to be solved. But most of the
applicants don't seem to have looked far for ideas.
We expected the most common proposal to be for multiplayer games.
We were not far off: this was the second most common.
The most common was some combination of a blog, a calendar,
a dating site, and Friendster. Maybe there is some new killer app
to be discovered here, but it seems perverse to go poking around
in this fog when there are valuable, unsolved problems lying about
in the open for anyone to see. Why did no one propose a new scheme
for micropayments? An ambitious project, perhaps, but I can't
believe we've considered every alternative. And newspapers and
magazines are (literally) dying for a solution.
Why did so few applicants really think about what customers want?
I think the problem with many, as with people in their early twenties
generally, is that they've been trained their whole lives to jump
through predefined hoops. They've spent 15-20 years solving problems
other people have set for them. And how much time deciding what
problems would be good to solve? Two or three course projects?
They're good at solving problems, but bad at choosing them.
But that, I'm convinced, is just the effect of training. Or more
precisely, the effect of grading. To make grading efficient,
everyone has to solve the same problem, and that means it has to
be decided in advance. It would be great if schools taught students
how to choose problems as well as how to solve them, but I don't
know how you'd run such a class in practice.
Copper and Tin
The good news is, choosing problems is something that can be learned.
I know that from experience. Hackers can learn to make things
customers want.
[6]
This is a controversial view. One expert on "entrepreneurship"
told me that any startup had to include business people, because
only they could focus on what customers wanted. I'll probably
alienate this guy forever by quoting him, but I have to risk it,
because his email was such a perfect example of this view:
80% of MIT spinoffs succeed provided they have at least one management person in the team at the start. The business person represents the "voice of the customer" and that's what keeps the engineers and product development on track.This is, in my opinion, a crock. Hackers are perfectly capable of hearing the voice of the customer without a business person to amplify the signal for them. Larry Page and Sergey Brin were grad students in computer science, which presumably makes them "engineers." Do you suppose Google is only good because they had some business guy whispering in their ears what customers wanted? It seems to me the business guys who did the most for Google were the ones who obligingly flew Altavista into a hillside just as Google was getting started.
If you can read this, I should be working.but now we've decided it's going to be
Make something people want.
The urge to look corporate-- sleek, commanding, prudent, yet with just a touch of hubris on your well-cut sleeve-- is an unexpected development in a time of business disgrace.The problem with this article is not just that it originated in a PR firm. The whole tone is bogus. This is the tone of someone writing down to their audience.
Bloggers are sensitive about becoming mouthpieces for other organizations and companies, which is the reason they began blogging in the first place.PR people fear bloggers for the same reason readers like them. And that means there may be a struggle ahead. As this new kind of writing draws readers away from traditional media, we should be prepared for whatever PR mutates into to compensate. When I think how hard PR firms work to score press hits in the traditional media, I can't imagine they'll work any less hard to feed stories to bloggers, if they can figure out how.

May 2005
(This essay is derived from a talk at the Berkeley CSUA.)
The three big powers on the Internet now are Yahoo, Google, and
Microsoft. Average age of their founders: 24. So it is pretty
well established now that grad students can start successful
companies. And if grad students can do it, why not undergrads?
Like everything else in technology, the cost of starting a startup
has decreased dramatically. Now it's so low that it has disappeared
into the noise. The main cost of starting a Web-based
startup is food and rent. Which means it doesn't cost much more
to start a company than to be a total slacker. You can probably
start a startup on ten thousand dollars of seed funding, if you're
prepared to live on ramen.
The less it costs to start a company, the less you need the permission
of investors to do it. So a lot of people will be able to start
companies now who never could have before.
The most interesting subset may be those in their early twenties.
I'm not so excited about founders who have everything investors
want except intelligence, or everything except energy. The most
promising group to be liberated by the new, lower threshold are
those who have everything investors want except experience.
Market Rate
I once claimed that nerds were unpopular
in secondary school mainly because they had better things to do
than work full-time at being popular. Some said I was just telling
people what they wanted to hear. Well, I'm now about to do that
in a spectacular way: I think undergraduates are undervalued.
Or more precisely, I think few realize the huge
spread in the value of 20 year olds. Some, it's true, are not very
capable. But others are more capable than all but a handful of 30
year olds. [1]
Till now the problem has always been that it's difficult to pick
them out. Every VC in the world, if they could go back in time,
would try to invest in Microsoft. But which would have then? How
many would have understood that this particular 19 year old was
Bill Gates?
It's hard to judge the young because (a) they change rapidly, (b)
there is great variation between them, and (c) they're individually
inconsistent. That last one is a big problem. When you're young,
you occasionally say and do stupid things even when you're smart.
So if the algorithm is to filter out people who say stupid things,
as many investors and employers unconsciously do, you're going to
get a lot of false positives.
Most organizations who hire people right out of college are only
aware of the average value of 22 year olds, which is not that high.
And so the idea for most of the twentieth century was that everyone
had to begin as a trainee in some
entry-level job. Organizations
realized there was a lot of variation in the incoming stream, but
instead of pursuing this thought they tended to suppress it, in the
belief that it was good for even the most promising kids to start
at the bottom, so they didn't get swelled heads.
The most productive young people will always be undervalued
by large organizations, because the young have no performance to
measure yet, and any error in guessing their ability will tend
toward the mean.
What's an especially productive 22 year old to do? One thing you
can do is go over the heads of organizations, directly to the users.
Any company that hires you is, economically, acting as a proxy for
the customer. The rate at which they value you (though they may
not consciously realize it) is an attempt to guess your value to
the user. But there's a way to appeal their judgement. If you
want, you can opt to be valued directly by users, by starting your
own company.
The market is a lot more discerning than any employer. And it is
completely non-discriminatory. On the Internet, nobody knows you're
a dog. And more to the point, nobody knows you're 22. All users
care about is whether your site or software gives them what they
want. They don't care if the person behind it is a high school
kid.
If you're really productive, why not make employers pay market rate
for you? Why go work as an ordinary employee for a big
company, when you could start a startup and make them buy it to get
you?
When most people hear the word "startup," they think of the famous
ones that have gone public. But most startups that succeed do it
by getting bought. And usually the acquirer doesn't just want the
technology, but the people who created it as well.
Often big companies buy startups before they're profitable. Obviously
in such cases they're not after revenues. What they want is the
development team and the software they've built so far. When a
startup gets bought for 2 or 3 million six months in, it's really
more of a hiring bonus than an acquisition.
I think this sort of thing will happen more and more, and that it
will be better for everyone. It's obviously better for the people
who start the startup, because they get a big chunk of money up
front. But I think it will be better for the acquirers too. The
central problem in big companies, and the main reason they're so
much less productive than small companies, is the difficulty of
valuing each person's work. Buying larval startups solves that
problem for them: the acquirer doesn't pay till the developers have
proven themselves. Acquirers are protected on the downside, but
still get most of the upside.
Product Development
Buying startups also solves another problem afflicting big companies:
they can't do product development. Big companies are good at
extracting the value from existing products, but bad at creating
new ones.
Why? It's worth studying this phenomenon in detail, because this
is the raison d'etre of startups.
To start with, most big companies have some kind of turf to protect,
and this tends to warp their development decisions. For example,
Web-based applications are hot now, but
within Microsoft there must
be a lot of ambivalence about them, because the very idea of Web-based
software threatens the desktop. So any Web-based application that
Microsoft ends up with, will probably, like Hotmail, be something
developed outside the company.
Another reason big companies are bad at developing new products is
that the kind of people who do that tend not to have much power in
big companies (unless they happen to be the CEO). Disruptive
technologies are developed by disruptive people. And they either
don't work for the big company, or have been outmaneuvered by yes-men
and have comparatively little influence.
Big companies also lose because they usually only build one of each
thing. When you only have one Web browser, you can't do anything
really risky with it. If ten different startups design ten different
Web browsers and you take the best, you'll probably get something
better.
The more general version of this problem is that there are too many
new ideas for companies to explore them all. There might be 500
startups right now who think they're making something Microsoft
might buy. Even Microsoft probably couldn't manage 500 development
projects in-house.
Big companies also don't pay people the right way. People developing
a new product at a big company get paid roughly the same whether
it succeeds or fails. People at a startup expect to get rich if
the product succeeds, and get nothing if it fails. [2] So naturally
the people at the startup work a lot harder.
The mere bigness of big companies is an obstacle. In startups,
developers are often forced to talk directly to users, whether they
want to or not, because there is no one else to do sales and support.
It's painful doing sales, but you learn much more from
trying to sell people something than reading what
they said in focus groups.
And then of course, big companies are bad at product development
because they're bad at everything. Everything happens slower in
big companies than small ones, and product development is something
that has to happen fast, because you have to go through a lot of
iterations to get something good.
Trend
I think the trend of big companies buying startups will only
accelerate. One of the biggest remaining obstacles is pride. Most
companies, at least unconsciously, feel they ought to be able to
develop stuff in house, and that buying startups is to some degree
an admission of failure. And so, as people generally do with
admissions of failure, they put it off for as long as possible.
That makes the acquisition very expensive when it finally happens.
What companies should do is go out and discover startups when they're
young, before VCs have puffed them up into something that costs
hundreds of millions to acquire. Much of what VCs add, the acquirer
doesn't need anyway.
Why don't acquirers try to predict the companies they're going to
have to buy for hundreds of millions, and grab them early for a
tenth or a twentieth of that? Because they can't predict the winners
in advance? If they're only paying a twentieth as much, they only
have to predict a twentieth as well. Surely they can manage that.
I think companies that acquire technology will gradually learn to
go after earlier stage startups. They won't necessarily buy them
outright. The solution may be some hybrid of investment and
acquisition: for example, to buy a chunk of the company and get an
option to buy the rest later.
When companies buy startups, they're effectively fusing recruiting
and product development. And I think that's more efficient than
doing the two separately, because you always get people who are
really committed to what they're working on.
Plus this method yields teams of developers who already work well
together. Any conflicts between them have been ironed out under
the very hot iron of running a startup. By the time the acquirer
gets them, they're finishing one another's sentences. That's
valuable in software, because so many bugs occur at the boundaries
between different people's code.
Investors
The increasing cheapness of starting a company doesn't just give
hackers more power relative to employers. It also gives them more
power relative to investors.
The conventional wisdom among VCs is that hackers shouldn't be
allowed to run their own companies. The founders are supposed to
accept MBAs as their bosses, and themselves take on some title like
Chief Technical Officer. There may be cases where this is a good
idea. But I think founders will increasingly be able to push back
in the matter of control, because they just don't need the investors'
money as much as they used to.
Startups are a comparatively new phenomenon. Fairchild Semiconductor
is considered the first VC-backed startup, and they were founded
in 1959, less than fifty years ago. Measured on the time scale of
social change, what we have now is pre-beta. So we shouldn't assume
the way startups work now is the way they have to work.
Fairchild needed a lot of money to get started. They had to build
actual factories. What does the first round of venture funding for
a Web-based startup get spent on today? More money can't get
software written faster; it isn't needed for facilities, because
those can now be quite cheap; all money can really buy you is sales
and marketing. A sales force is worth something, I'll admit. But
marketing is increasingly irrelevant. On the Internet, anything
genuinely good will spread by word of mouth.
Investors' power comes from money. When startups need less money,
investors have less power over them. So future founders may not
have to accept new CEOs if they don't want them. The VCs will have
to be dragged kicking and screaming down this road, but like many
things people have to be dragged kicking and screaming toward, it
may actually be good for them.
Google is a sign of the way things are going. As a condition of
funding, their investors insisted they hire someone old and experienced
as CEO. But from what I've heard the founders didn't just give in
and take whoever the VCs wanted. They delayed for an entire year,
and when they did finally take a CEO, they chose a guy with a PhD
in computer science.
It sounds to me as if the founders are still the most powerful
people in the company, and judging by Google's performance, their
youth and inexperience doesn't seem to have hurt them. Indeed, I
suspect Google has done better than they would have if the founders
had given the VCs what they wanted, when they wanted it, and let
some MBA take over as soon as they got their first round of funding.
I'm not claiming the business guys installed by VCs have no value.
Certainly they have. But they don't need to become the founders'
bosses, which is what that title CEO means. I predict that in the
future the executives installed by VCs will increasingly be COOs
rather than CEOs. The founders will run engineering directly, and
the rest of the company through the COO.
The Open Cage
With both employers and investors, the balance of power is slowly
shifting towards the young. And yet they seem the last to realize
it. Only the most ambitious undergrads even consider starting their
own company when they graduate. Most just want to get a job.
Maybe this is as it should be. Maybe if the idea of starting a
startup is intimidating, you filter out the uncommitted. But I
suspect the filter is set a little too high. I think there are
people who could, if they tried, start successful startups, and who
instead let themselves be swept into the intake ducts of big
companies.
Have you ever noticed that when animals are let out of cages, they
don't always realize at first that the door's open? Often they
have to be poked with a stick to get them out. Something similar
happened with blogs. People could have been publishing online in
1995, and yet blogging has only really taken off in the last couple
years. In 1995 we thought only professional writers were entitled
to publish their ideas, and that anyone else who did was a crank.
Now publishing online is becoming so popular that everyone wants
to do it, even print journalists. But blogging has not taken off
recently because of any technical innovation; it just took eight
years for everyone to realize the cage was open.
I think most undergrads don't realize yet that the economic cage
is open. A lot have been told by their parents that the route to
success is to get a good job. This was true when their parents
were in college, but it's less true now. The route to success is
to build something valuable, and you don't have to be working for
an existing company to do that. Indeed, you can often do it better
if you're not.
When I talk to undergrads, what surprises me most about them is how
conservative they are. Not politically, of course. I mean they
don't seem to want to take risks. This is a mistake, because the
younger you are, the more risk you can take.
Risk
Risk and reward are always proportionate. For example, stocks are
riskier than bonds, and over time always have greater returns. So
why does anyone invest in bonds? The catch is that phrase "over
time." Stocks will generate greater returns over thirty years, but
they might lose value from year to year. So what you should invest
in depends on how soon you need the money. If you're young, you
should take the riskiest investments you can find.
All this talk about investing may seem very theoretical. Most
undergrads probably have more debts than assets. They may feel
they have nothing to invest. But that's not true: they have their
time to invest, and the same rule about risk applies there. Your
early twenties are exactly the time to take insane career risks.
The reason risk is always proportionate to reward is that market
forces make it so. People will pay extra for stability. So if you
choose stability-- by buying bonds, or by going to work for a big
company-- it's going to cost you.
Riskier career moves pay better on average, because there is less
demand for them. Extreme choices like starting a startup are so
frightening that most people won't even try. So you don't end up
having as much competition as you might expect, considering the
prizes at stake.
The math is brutal. While perhaps 9 out of 10 startups fail, the
one that succeeds will pay the founders more than 10 times what
they would have made in an ordinary job. [3]
That's the sense in
which startups pay better "on average."
Remember that. If you start a startup, you'll probably fail. Most
startups fail. It's the nature of the business. But it's not
necessarily a mistake to try something that has a 90% chance of
failing, if you can afford the risk. Failing at 40, when you have
a family to support, could be serious. But if you fail at 22, so
what? If you try to start a startup right out of college and it
tanks, you'll end up at 23 broke and a lot smarter. Which, if you
think about it, is roughly what you hope to get from a graduate
program.
Even if your startup does tank, you won't harm your prospects with
employers. To make sure I asked some friends who work for big
companies. I asked managers at Yahoo, Google, Amazon, Cisco and
Microsoft how they'd feel about two candidates, both 24, with equal
ability, one who'd tried to start a startup that tanked, and another
who'd spent the two years since college working as a developer at
a big company. Every one responded that they'd prefer the guy who'd
tried to start his own company. Zod Nazem, who's in charge of
engineering at Yahoo, said:
I actually put more value on the guy with the failed startup. And you can quote me!So there you have it. Want to get hired by Yahoo? Start your own company.

October 2005
(This essay is derived from a talk at the 2005
Startup School.)
How do you get good ideas for
startups? That's probably the number
one question people ask me.
I'd like to reply with another question: why do people think it's
hard to come up with ideas for startups?
That might seem a stupid thing to ask. Why do they think
it's hard? If people can't do it, then it is hard, at least
for them. Right?
Well, maybe not. What people usually say is not that they can't
think of ideas, but that they don't have any. That's not quite the
same thing. It could be the reason they don't have any is that
they haven't tried to generate them.
I think this is often the case. I think people believe that coming
up with ideas for startups is very hard-- that it must be
very hard-- and so they don't try do to it. They assume ideas are
like miracles: they either pop into your head or they don't.
I also have a theory about why people think this. They overvalue
ideas. They think creating a startup is just a matter of implementing
some fabulous initial idea. And since a successful startup is worth
millions of dollars, a good idea is therefore a million dollar idea.
If coming up with an idea for a startup equals coming up with a
million dollar idea, then of course it's going to seem hard. Too
hard to bother trying. Our instincts tell us something so valuable
would not be just lying around for anyone to discover.
Actually, startup ideas are not million dollar ideas, and here's
an experiment you can try to prove it: just try to sell one. Nothing
evolves faster than markets. The fact that there's no market for
startup ideas suggests there's no demand. Which means, in the
narrow sense of the word, that startup ideas are worthless.
Questions
The fact is, most startups end up nothing like the initial idea.
It would be closer to the truth to say the main value of your initial
idea is that, in the process of discovering it's broken, you'll
come up with your real idea.
The initial idea is just a starting point-- not a blueprint, but a
question. It might help if they were expressed that way. Instead
of saying that your idea is to make a collaborative, web-based
spreadsheet, say: could one make a collaborative, web-based
spreadsheet? A few grammatical tweaks, and a woefully incomplete
idea becomes a promising question to explore.
There's a real difference, because an assertion provokes objections
in a way a question doesn't. If you say: I'm going to build a
web-based spreadsheet, then critics-- the most dangerous of which
are in your own head-- will immediately reply that you'd be competing
with Microsoft, that you couldn't give people the kind of UI they
expect, that users wouldn't want to have their data on your servers,
and so on.
A question doesn't seem so challenging. It becomes: let's try
making a web-based spreadsheet and see how far we get. And everyone
knows that if you tried this you'd be able to make something
useful. Maybe what you'd end up with wouldn't even be a spreadsheet.
Maybe it would be some kind of new spreadsheet-like collaboration
tool that doesn't even have a name yet. You wouldn't have thought
of something like that except by implementing your way toward it.
Treating a startup idea as a question changes what you're looking
for. If an idea is a blueprint, it has to be right. But if it's
a question, it can be wrong, so long as it's wrong in a way that
leads to more ideas.
One valuable way for an idea to be wrong is to be only a partial
solution. When someone's working on a problem that seems too
big, I always ask: is there some way to bite off some subset of the
problem, then gradually expand from there? That will generally
work unless you get trapped on a local maximum, like 1980s-style
AI, or C.
Upwind
So far, we've reduced the problem from thinking of a million dollar
idea to thinking of a mistaken question. That doesn't seem so hard,
does it?
To generate such questions you need two things: to be familiar with
promising new technologies, and to have the right kind of friends.
New technologies are the ingredients startup ideas are made of, and
conversations with friends are the kitchen they're cooked in.
Universities have both, and that's why so many startups grow out
of them. They're filled with new technologies, because they're
trying to produce research, and only things that are new count as
research. And they're full of exactly the right kind of people to
have ideas with: the other students, who will be not only smart but
elastic-minded to a fault.
The opposite extreme would be a well-paying but boring job at a big
company. Big companies are biased against new technologies, and
the people you'd meet there would be wrong too.
In an essay I wrote for high school students,
I said a good rule of thumb was to stay upwind-- to
work on things that maximize your future options. The principle
applies for adults too, though perhaps it has to be modified to:
stay upwind for as long as you can, then cash in the potential
energy you've accumulated when you need to pay for kids.
I don't think people consciously realize this, but one reason
downwind jobs like churning out Java for a bank pay so well is
precisely that they are downwind. The market price for that kind
of work is higher because it gives you fewer options for the future.
A job that lets you work on exciting new stuff will tend to pay
less, because part of the compensation is in the form of the new
skills you'll learn.
Grad school is the other end of the spectrum from a coding job at
a big company: the pay's low but you spend most of your time working
on new stuff. And of course, it's called "school," which makes
that clear to everyone, though in fact all jobs are some percentage
school.
The right environment for having startup ideas need not be a
university per se. It just has to be a situation with a large
percentage of school.
It's obvious why you want exposure to new technology, but why do
you need other people? Can't you just think of new ideas yourself?
The empirical answer is: no. Even Einstein needed people to bounce
ideas off. Ideas get developed in the process of explaining them
to the right kind of person. You need that resistance, just
as a carver needs the resistance of the wood.
This is one reason Y Combinator has a rule against investing in
startups with only one founder. Practically every successful company
has at least two. And because startup founders work under great
pressure, it's critical they be friends.
I didn't realize it till I was writing this, but that may help
explain why there are so few female startup founders. I read on
the Internet (so it must be true) that only 1.7% of VC-backed
startups are founded by women. The percentage of female hackers
is small, but not that small. So why the discrepancy?
When you realize that successful startups tend to have multiple
founders who were already friends, a
possible explanation emerges. People's best friends are likely to
be of the same sex, and if one group is a minority in some population,
pairs of them will be a minority squared.
[1]
Doodling
What these groups of co-founders do together is more complicated
than just sitting down and trying to think of ideas. I suspect the
most productive setup is a kind of together-alone-together sandwich.
Together you talk about some hard problem, probably getting nowhere.
Then, the next morning, one of you has an idea in the shower about
how to solve it. He runs eagerly to to tell the others, and together
they work out the kinks.
What happens in that shower? It seems to me that ideas just pop
into my head. But can we say more than that?
Taking a shower is like a form of meditation. You're alert, but
there's nothing to distract you. It's in a situation like this,
where your mind is free to roam, that it bumps into new ideas.
What happens when your mind wanders? It may be like doodling. Most
people have characteristic ways of doodling. This habit is
unconscious, but not random: I found my doodles changed after I
started studying painting. I started to make the kind of gestures
I'd make if I were drawing from life. They were atoms of drawing,
but arranged randomly.
[2]
Perhaps letting your mind wander is like doodling with ideas. You
have certain mental gestures you've learned in your work, and when
you're not paying attention, you keep making these same gestures,
but somewhat randomly. In effect, you call the same functions on
random arguments. That's what a metaphor is: a function applied
to an argument of the wrong type.
Conveniently, as I was writing this, my mind wandered: would it be
useful to have metaphors in a programming language? I don't know;
I don't have time to think about this. But it's convenient because
this is an example of what I mean by habits of mind. I spend a lot
of time thinking about language design, and my habit of always
asking "would x be useful in a programming language" just got
invoked.
If new ideas arise like doodles, this would explain why you have
to work at something for a while before you have any. It's not
just that you can't judge ideas till you're an expert in a field.
You won't even generate ideas, because you won't have any habits
of mind to invoke.
Of course the habits of mind you invoke on some field don't have
to be derived from working in that field. In fact, it's often
better if they're not. You're not just looking for good ideas, but
for good new ideas, and you have a better chance of generating
those if you combine stuff from distant fields. As hackers, one
of our habits of mind is to ask, could one open-source x? For
example, what if you made an open-source operating system? A fine
idea, but not very novel. Whereas if you ask, could you make an
open-source play? you might be onto something.
Are some kinds of work better sources of habits of mind than others?
I suspect harder fields may be better sources, because to attack
hard problems you need powerful solvents. I find math is a good
source of metaphors-- good enough that it's worth studying just for
that. Related fields are also good sources, especially when they're
related in unexpected ways. Everyone knows computer science and
electrical engineering are related, but precisely because everyone
knows it, importing ideas from one to the other doesn't yield great
profits. It's like importing something from Wisconsin to Michigan.
Whereas (I claim) hacking and painting are
also related, in the sense that hackers and painters are both
makers,
and this source of new ideas is practically virgin territory.
Problems
In theory you could stick together ideas at random and see what you
came up with. What if you built a peer-to-peer dating site? Would
it be useful to have an automatic book? Could you turn theorems
into a commodity? When you assemble ideas at random like this,
they may not be just stupid, but semantically ill-formed. What
would it even mean to make theorems a commodity? You got me. I
didn't think of that idea, just its name.
You might come up with something useful this way, but I never have.
It's like knowing a fabulous sculpture is hidden inside a block of
marble, and all you have to do is remove the marble that isn't part
of it. It's an encouraging thought, because it reminds you there
is an answer, but it's not much use in practice because the search
space is too big.
I find that to have good ideas I need to be working on some problem.
You can't start with randomness. You have to start with a problem,
then let your mind wander just far enough for new ideas to form.
In a way, it's harder to see problems than their solutions. Most
people prefer to remain in denial about problems. It's obvious
why: problems are irritating. They're problems! Imagine if people
in 1700 saw their lives the way we'd see them. It would have been
unbearable. This denial is such a powerful force that, even when
presented with possible solutions, people often prefer to believe
they wouldn't work.
I saw this phenomenon when I worked on spam filters. In 2002, most
people preferred to ignore spam, and most of those who didn't
preferred to believe the heuristic filters then available were the
best you could do.
I found spam intolerable, and I felt it had to be possible to
recognize it statistically. And it turns out that was all you
needed to solve the problem. The algorithm I used was ridiculously
simple. Anyone who'd really tried to solve the problem would have
found it. It was just that no one had really tried to solve the
problem.
[3]
Let me repeat that recipe: finding the problem intolerable and
feeling it must be possible to solve it. Simple as it seems, that's
the recipe for a lot of startup ideas.
Wealth
So far most of what I've said applies to ideas in general. What's
special about startup ideas? Startup ideas are ideas for companies,
and companies have to make money. And the way to make money is to
make something people want.
Wealth is what people want. I don't mean that as some kind of
philosophical statement; I mean it as a tautology.
So an idea for a startup is an idea for something people want.
Wouldn't any good idea be something people want? Unfortunately
not. I think new theorems are a fine thing to create, but there
is no great demand for them. Whereas there appears to be great
demand for celebrity gossip magazines. Wealth is defined democratically.
Good ideas and valuable ideas are not quite the same thing; the
difference is individual tastes.
But valuable ideas are very close to good ideas, especially in
technology. I think they're so close that you can get away with
working as if the goal were to discover good ideas, so long as, in
the final stage, you stop and ask: will people actually pay for
this? Only a few ideas are likely to make it that far and then get
shot down; RPN calculators might be one example.
One way to make something people want is to look at stuff people
use now that's broken. Dating sites are a prime example. They
have millions of users, so they must be promising something people
want. And yet they work horribly. Just ask anyone who uses them.
It's as if they used the worse-is-better approach but stopped after
the first stage and handed the thing over to marketers.
Of course, the most obvious breakage in the average computer user's
life is Windows itself. But this is a special case: you can't
defeat a monopoly by a frontal attack. Windows can and will be
overthrown, but not by giving people a better desktop OS. The way
to kill it is to redefine the problem as a superset of the current
one. The problem is not, what operating system should people use
on desktop computers? but how should people use applications?
There are answers to that question that don't even involve desktop
computers.
Everyone thinks Google is going to solve this problem, but it is a
very subtle one, so subtle that a company as big as Google might
well get it wrong. I think the odds are better than 50-50 that the
Windows killer-- or more accurately, Windows transcender-- will
come from some little startup.
Another classic way to make something people want is to take a
luxury and make it into a commmodity. People must want something
if they pay a lot for it. And it is a very rare product that can't
be made dramatically cheaper if you try.
This was Henry Ford's plan. He made cars, which had been a luxury
item, into a commodity. But the idea is much older than Henry Ford.
Water mills transformed mechanical power from a luxury into a
commodity, and they were used in the Roman empire. Arguably
pastoralism transformed a luxury into a commodity.
When you make something cheaper you can sell more of them. But if
you make something dramatically cheaper you often get qualitative
changes, because people start to use it in different ways. For
example, once computers get so cheap that most people can have one
of their own, you can use them as communication devices.
Often to make something dramatically cheaper you have to redefine
the problem. The Model T didn't have all the features previous
cars did. It only came in black, for example. But it solved the
problem people cared most about, which was getting from place to
place.
One of the most useful mental habits I know I learned from Michael
Rabin: that the best way to solve a problem is often to redefine
it. A lot of people use this technique without being consciously
aware of it, but Rabin was spectacularly explicit. You need a big
prime number? Those are pretty expensive. How about if I give you
a big number that only has a 10 to the minus 100 chance of not being
prime? Would that do? Well, probably; I mean, that's probably
smaller than the chance that I'm imagining all this anyway.
Redefining the problem is a particularly juicy heuristic when you
have competitors, because it's so hard for rigid-minded people to
follow. You can work in plain sight and they don't realize the
danger. Don't worry about us. We're just working on search. Do
one thing and do it well, that's our motto.
Making things cheaper is actually a subset of a more general
technique: making things easier. For a long time it was most of
making things easier, but now that the things we build are so
complicated, there's another rapidly growing subset: making things
easier to use.
This is an area where there's great room for improvement. What you
want to be able to say about technology is: it just works. How
often do you say that now?
Simplicity takes effort-- genius, even. The average programmer
seems to produce UI designs that are almost willfully bad. I was
trying to use the stove at my mother's house a couple weeks ago.
It was a new one, and instead of physical knobs it had buttons and
an LED display. I tried pressing some buttons I thought would cause
it to get hot, and you know what it said? "Err." Not even "Error."
"Err." You can't just say "Err" to the user of a stove.
You should design the UI so that errors are impossible. And the
boneheads who designed this stove even had an example of such a UI
to work from: the old one. You turn one knob to set the temperature
and another to set the timer. What was wrong with that? It just
worked.
It seems that, for the average engineer, more options just means
more rope to hang yourself. So if you want to start a startup, you
can take almost any existing technology produced by a big company,
and assume you could build something way easier to use.
Design for Exit
Success for a startup approximately equals getting bought. You
need some kind of exit strategy, because you can't get the smartest
people to work for you without giving them options likely to be
worth something. Which means you either have to get bought or go
public, and the number of startups that go public is very small.
If success probably means getting bought, should you make that a
conscious goal? The old answer was no: you were supposed to pretend
that you wanted to create a giant, public company, and act surprised
when someone made you an offer. Really, you want to buy us? Well,
I suppose we'd consider it, for the right price.
I think things are changing. If 98% of the time success means
getting bought, why not be open about it? If 98% of the time you're
doing product development on spec for some big company, why not
think of that as your task? One advantage of this approach is that
it gives you another source of ideas: look at big companies, think
what they should
be doing, and do it yourself. Even if
they already know it, you'll probably be done faster.
Just be sure to make something multiple acquirers will want. Don't
fix Windows, because the only potential acquirer is Microsoft, and
when there's only one acquirer, they don't have to hurry. They can
take their time and copy you instead of buying you. If you want
to get market price, work on something where there's competition.
If an increasing number of startups are created to do product
development on spec, it will be a natural counterweight to monopolies.
Once some type of technology is captured by a monopoly, it will
only evolve at big company rates instead of startup rates, whereas
alternatives will evolve with especial speed. A free market
interprets monopoly as damage and routes around it.
The Woz Route
The most productive way to generate startup ideas is also the
most unlikely-sounding: by accident. If you look at how famous
startups got started, a lot of them weren't initially supposed to
be startups. Lotus began with a program Mitch Kapor wrote for a
friend. Apple got started because Steve Wozniak wanted to build
microcomputers, and his employer, Hewlett-Packard, wouldn't let him
do it at work. Yahoo began as David Filo's personal collection of
links.
This is not the only way to start startups. You can sit down and
consciously come up with an idea for a company; we did. But measured
in total market cap, the build-stuff-for-yourself model might be
more fruitful. It certainly has to be the most fun way to come up
with startup ideas. And since a startup ought to have multiple
founders who were already friends before they decided to start a
company, the rather surprising conclusion is that the best way to
generate startup ideas is to do what hackers do for fun: cook up
amusing hacks with your friends.
It seems like it violates some kind of conservation law, but there
it is: the best way to get a "million dollar idea" is just to do
what hackers enjoy doing anyway.
Notes
[1]
This phenomenon may account for a number of discrepancies
currently blamed on various forbidden isms. Never attribute to
malice what can be explained by math.
[2]
A lot of classic abstract expressionism is doodling of this type:
artists trained to paint from life using the same gestures but
without using them to represent anything. This explains why such
paintings are (slightly) more interesting than random marks would be.
[3]
Bill Yerazunis had solved the problem, but he got there by
another path. He made a general-purpose file classifier so good
that it also worked for spam.
November 2005
Venture funding works like gears. A typical startup goes through
several rounds of funding, and at each round you want to take just
enough money to reach the speed where you can shift into the next
gear.
Few startups get it quite right. Many are underfunded. A few are
overfunded, which is like trying to start driving in third gear.
I think it would help founders to understand funding better—not
just the mechanics of it, but what investors are thinking. I was
surprised recently when I realized that all the worst problems we
faced in our startup were due not to competitors, but investors.
Dealing with competitors was easy by comparison.
I don't mean to suggest that our investors were nothing but a drag
on us. They were helpful in negotiating deals, for example. I
mean more that conflicts with investors are particularly nasty.
Competitors punch you in the jaw, but investors have you by the
balls.
Apparently our situation was not unusual. And if trouble with
investors is one of the biggest threats to a startup, managing them
is one of the most important skills founders need to learn.
Let's start by talking about the five sources of startup funding.
Then we'll trace the life of a hypothetical (very fortunate) startup
as it shifts gears through successive rounds.
Friends and Family
A lot of startups get their first funding from friends and family.
Excite did, for example: after the founders graduated from college,
they borrowed $15,000 from their parents to start a company. With
the help of some part-time jobs they made it last 18 months.
If your friends or family happen to be rich, the line blurs between
them and angel investors. At Viaweb we got our first $10,000 of
seed money from our friend Julian, but he was sufficiently rich
that it's hard to say whether he should be classified as a friend
or angel. He was also a lawyer, which was great, because it meant
we didn't have to pay legal bills out of that initial small sum.
The advantage of raising money from friends and family is that
they're easy to find. You already know them. There are three main
disadvantages: you mix together your business and personal life;
they will probably not be as well connected as angels or venture
firms; and they may not be accredited investors, which could
complicate your life later.
The SEC defines an "accredited investor" as someone with over a
million dollars in liquid assets or an income of over $200,000 a
year. The regulatory burden is much lower if a company's shareholders
are all accredited investors. Once you take money from the general
public you're more restricted in what you can do.
[1]
A startup's life will be more complicated, legally, if any of the
investors aren't accredited. In an IPO, it might not merely add
expense, but change the outcome. A lawyer I asked about it said:
When the company goes public, the SEC will carefully study all prior issuances of stock by the company and demand that it take immediate action to cure any past violations of securities laws. Those remedial actions can delay, stall or even kill the IPO.Of course the odds of any given startup doing an IPO are small. But not as small as they might seem. A lot of startups that end up going public didn't seem likely to at first. (Who could have guessed that the company Wozniak and Jobs started in their spare time selling plans for microcomputers would yield one of the biggest IPOs of the decade?) Much of the value of a startup consists of that tiny probability multiplied by the huge outcome.
The better ones usually will not give a term sheet unless they really want to do a deal. The second or third tier firms have a much higher break rate—it could be as high as 50%.It's obvious why: the lower-tier firms' biggest fear, when chance throws them a bone, is that one of the big dogs will notice and take it away. The big dogs don't have to worry about that.
If you were talking to four VCs, told three of them that you accepted a term sheet, and then have to call them back to tell them you were just kidding, you are absolutely damaged goods.Here's a partial solution: when a VC offers you a term sheet, ask how many of their last 10 term sheets turned into deals. This will at least force them to lie outright if they want to mislead you.
I'm not hard to find. I know a lot of people. If you can't find some way to reach me, how are you going to create a successful company?One of the most difficult problems for startup founders is deciding when to approach VCs. You really only get one chance, because they rely heavily on first impressions. And you can't approach some and save others for later, because (a) they ask who else you've talked to and when and (b) they talk among themselves. If you're talking to one VC and he finds out that you were rejected by another several months ago, you'll definitely seem shopworn.
Two-firm deals are great. It costs you a little more equity, but being able to play the two firms off each other (as well as ask one if the other is being out of line) is invaluable.When you do negotiate with VCs, remember that they've done this a lot more than you have. They've invested in dozens of startups, whereas this is probably the first you've founded. But don't let them or the situation intimidate you. The average founder is smarter than the average VC. So just do what you'd do in any complex, unfamiliar situation: proceed deliberately, and question anything that seems odd.
November 2005
Does "Web 2.0" mean anything? Till recently I thought it didn't,
but the truth turns out to be more complicated. Originally, yes,
it was meaningless. Now it seems to have acquired a meaning. And
yet those who dislike the term are probably right, because if it
means what I think it does, we don't need it.
I first heard the phrase "Web 2.0" in the name of the Web 2.0
conference in 2004. At the time it was supposed to mean using "the
web as a platform," which I took to refer to web-based applications.
[1]
So I was surprised at a conference this summer when Tim O'Reilly
led a session intended to figure out a definition of "Web 2.0."
Didn't it already mean using the web as a platform? And if it
didn't already mean something, why did we need the phrase at all?
Origins
Tim says the phrase "Web 2.0" first
arose in "a brainstorming session between
O'Reilly and Medialive International." What is Medialive International?
"Producers of technology tradeshows and conferences," according to
their site. So presumably that's what this brainstorming session
was about. O'Reilly wanted to organize a conference about the web,
and they were wondering what to call it.
I don't think there was any deliberate plan to suggest there was a
new version of the web. They just wanted to make the point
that the web mattered again. It was a kind of semantic deficit
spending: they knew new things were coming, and the "2.0" referred
to whatever those might turn out to be.
And they were right. New things were coming. But the new version
number led to some awkwardness in the short term. In the process
of developing the pitch for the first conference, someone must have
decided they'd better take a stab at explaining what that "2.0"
referred to. Whatever it meant, "the web as a platform" was at
least not too constricting.
The story about "Web 2.0" meaning the web as a platform didn't live
much past the first conference. By the second conference, what
"Web 2.0" seemed to mean was something about democracy. At least,
it did when people wrote about it online. The conference itself
didn't seem very grassroots. It cost $2800, so the only people who
could afford to go were VCs and people from big companies.
And yet, oddly enough, Ryan Singel's article
about the conference in Wired News spoke of "throngs of
geeks." When a friend of mine asked Ryan about this, it was news
to him. He said he'd originally written something like "throngs
of VCs and biz dev guys" but had later shortened it just to "throngs,"
and that this must have in turn been expanded by the editors into
"throngs of geeks." After all, a Web 2.0 conference would presumably
be full of geeks, right?
Well, no. There were about 7. Even Tim O'Reilly was wearing a
suit, a sight so alien I couldn't parse it at first. I saw
him walk by and said to one of the O'Reilly people "that guy looks
just like Tim."
"Oh, that's Tim. He bought a suit."
I ran after him, and sure enough, it was. He explained that he'd
just bought it in Thailand.
The 2005 Web 2.0 conference reminded me of Internet trade shows
during the Bubble, full of prowling VCs looking for the next hot
startup. There was that same odd atmosphere created by a large
number of people determined not to miss out. Miss out on what?
They didn't know. Whatever was going to happen—whatever Web 2.0
turned out to be.
I wouldn't quite call it "Bubble 2.0" just because VCs are eager
to invest again. The Internet is a genuinely big deal. The bust
was as much an overreaction as
the boom. It's to be expected that once we started to pull out of
the bust, there would be a lot of growth in this area, just as there
was in the industries that spiked the sharpest before the Depression.
The reason this won't turn into a second Bubble is that the IPO
market is gone. Venture investors
are driven by exit strategies. The reason they were funding all
those laughable startups during the late 90s was that they hoped
to sell them to gullible retail investors; they hoped to be laughing
all the way to the bank. Now that route is closed. Now the default
exit strategy is to get bought, and acquirers are less prone to
irrational exuberance than IPO investors. The closest you'll get
to Bubble valuations is Rupert Murdoch paying $580 million for
Myspace. That's only off by a factor of 10 or so.
1. Ajax
Does "Web 2.0" mean anything more than the name of a conference
yet? I don't like to admit it, but it's starting to. When people
say "Web 2.0" now, I have some idea what they mean. And the fact
that I both despise the phrase and understand it is the surest proof
that it has started to mean something.
One ingredient of its meaning is certainly Ajax, which I can still
only just bear to use without scare quotes. Basically, what "Ajax"
means is "Javascript now works." And that in turn means that
web-based applications can now be made to work much more like desktop
ones.
As you read this, a whole new generation
of software is being written to take advantage of Ajax. There
hasn't been such a wave of new applications since microcomputers
first appeared. Even Microsoft sees it, but it's too late for them
to do anything more than leak "internal"
documents designed to give the impression they're on top of this
new trend.
In fact the new generation of software is being written way too
fast for Microsoft even to channel it, let alone write their own
in house. Their only hope now is to buy all the best Ajax startups
before Google does. And even that's going to be hard, because
Google has as big a head start in buying microstartups as it did
in search a few years ago. After all, Google Maps, the canonical
Ajax application, was the result of a startup they bought.
So ironically the original description of the Web 2.0 conference
turned out to be partially right: web-based applications are a big
component of Web 2.0. But I'm convinced they got this right by
accident. The Ajax boom didn't start till early 2005, when Google
Maps appeared and the term "Ajax" was coined.
2. Democracy
The second big element of Web 2.0 is democracy. We now have several
examples to prove that amateurs can
surpass professionals, when they have the right kind of system to
channel their efforts. Wikipedia
may be the most famous. Experts have given Wikipedia middling
reviews, but they miss the critical point: it's good enough. And
it's free, which means people actually read it. On the web, articles
you have to pay for might as well not exist. Even if you were
willing to pay to read them yourself, you can't link to them.
They're not part of the conversation.
Another place democracy seems to win is in deciding what counts as
news. I never look at any news site now except Reddit.
[2]
I know if something major
happens, or someone writes a particularly interesting article, it
will show up there. Why bother checking the front page of any
specific paper or magazine? Reddit's like an RSS feed for the whole
web, with a filter for quality. Similar sites include Digg, a technology news site that's
rapidly approaching Slashdot in popularity, and del.icio.us, the collaborative
bookmarking network that set off the "tagging" movement. And whereas
Wikipedia's main appeal is that it's good enough and free, these
sites suggest that voters do a significantly better job than human
editors.
The most dramatic example of Web 2.0 democracy is not in the selection
of ideas, but their production.
I've noticed for a while that the stuff I read on individual people's
sites is as good as or better than the stuff I read in newspapers
and magazines. And now I have independent evidence: the top links
on Reddit are generally links to individual people's sites rather
than to magazine articles or news stories.
My experience of writing
for magazines suggests an explanation. Editors. They control the
topics you can write about, and they can generally rewrite whatever
you produce. The result is to damp extremes. Editing yields 95th
percentile writing—95% of articles are improved by it, but 5% are
dragged down. 5% of the time you get "throngs of geeks."
On the web, people can publish whatever they want. Nearly all of
it falls short of the editor-damped writing in print publications.
But the pool of writers is very, very large. If it's large enough,
the lack of damping means the best writing online should surpass
the best in print.
[3]
And now that the web has evolved mechanisms
for selecting good stuff, the web wins net. Selection beats damping,
for the same reason market economies beat centrally planned ones.
Even the startups are different this time around. They are to the
startups of the Bubble what bloggers are to the print media. During
the Bubble, a startup meant a company headed by an MBA that was
blowing through several million dollars of VC money to "get big
fast" in the most literal sense. Now it means a smaller, younger, more technical group that just
decided to make something great. They'll decide later if they want
to raise VC-scale funding, and if they take it, they'll take it on
their terms.
3. Don't Maltreat Users
I think everyone would agree that democracy and Ajax are elements
of "Web 2.0." I also see a third: not to maltreat users. During
the Bubble a lot of popular sites were quite high-handed with users.
And not just in obvious ways, like making them register, or subjecting
them to annoying ads. The very design of the average site in the
late 90s was an abuse. Many of the most popular sites were loaded
with obtrusive branding that made them slow to load and sent the
user the message: this is our site, not yours. (There's a physical
analog in the Intel and Microsoft stickers that come on some
laptops.)
I think the root of the problem was that sites felt they were giving
something away for free, and till recently a company giving anything
away for free could be pretty high-handed about it. Sometimes it
reached the point of economic sadism: site owners assumed that the
more pain they caused the user, the more benefit it must be to them.
The most dramatic remnant of this model may be at salon.com, where
you can read the beginning of a story, but to get the rest you have
sit through a movie.
At Y Combinator we advise all the startups we fund never to lord
it over users. Never make users register, unless you need to in
order to store something for them. If you do make users register,
never make them wait for a confirmation link in an email; in fact,
don't even ask for their email address unless you need it for some
reason. Don't ask them any unnecessary questions. Never send them
email unless they explicitly ask for it. Never frame pages you
link to, or open them in new windows. If you have a free version
and a pay version, don't make the free version too restricted. And
if you find yourself asking "should we allow users to do x?" just
answer "yes" whenever you're unsure. Err on the side of generosity.
In How to Start a Startup I advised startups
never to let anyone fly under them, meaning never to let any other
company offer a cheaper, easier solution. Another way to fly low
is to give users more power. Let users do what they want. If you
don't and a competitor does, you're in trouble.
iTunes is Web 2.0ish in this sense. Finally you can buy individual
songs instead of having to buy whole albums. The recording industry
hated the idea and resisted it as long as possible. But it was
obvious what users wanted, so Apple flew under the labels.
[4]
Though really it might be better to describe iTunes as Web 1.5.
Web 2.0 applied to music would probably mean individual bands giving
away DRMless songs for free.
The ultimate way to be nice to users is to give them something for
free that competitors charge for. During the 90s a lot of people
probably thought we'd have some working system for micropayments
by now. In fact things have gone in the other direction. The most
successful sites are the ones that figure out new ways to give stuff
away for free. Craigslist has largely destroyed the classified ad
sites of the 90s, and OkCupid looks likely to do the same to the
previous generation of dating sites.
Serving web pages is very, very cheap. If you can make even a
fraction of a cent per page view, you can make a profit. And
technology for targeting ads continues to improve. I wouldn't be
surprised if ten years from now eBay had been supplanted by an
ad-supported freeBay (or, more likely, gBay).
Odd as it might sound, we tell startups that they should try to
make as little money as possible. If you can figure out a way to
turn a billion dollar industry into a fifty million dollar industry,
so much the better, if all fifty million go to you. Though indeed,
making things cheaper often turns out to generate more money in the
end, just as automating things often turns out to generate more
jobs.
The ultimate target is Microsoft. What a bang that balloon is going
to make when someone pops it by offering a free web-based alternative
to MS Office.
[5]
Who will? Google? They seem to be taking their
time. I suspect the pin will be wielded by a couple of 20 year old
hackers who are too naive to be intimidated by the idea. (How hard
can it be?)
The Common Thread
Ajax, democracy, and not dissing users. What do they all have in
common? I didn't realize they had anything in common till recently,
which is one of the reasons I disliked the term "Web 2.0" so much.
It seemed that it was being used as a label for whatever happened
to be new—that it didn't predict anything.
But there is a common thread. Web 2.0 means using the web the way
it's meant to be used. The "trends" we're seeing now are simply
the inherent nature of the web emerging from under the broken models
that got imposed on it during the Bubble.
I realized this when I read an interview with
Joe Kraus, the co-founder of Excite.
[6]
Excite really never got the business model right at all. We fell into the classic problem of how when a new medium comes out it adopts the practices, the content, the business models of the old medium—which fails, and then the more appropriate models get figured out.It may have seemed as if not much was happening during the years after the Bubble burst. But in retrospect, something was happening: the web was finding its natural angle of repose. The democracy component, for example—that's not an innovation, in the sense of something someone made happen. That's what the web naturally tends to produce.
Sites like del.icio.us and flickr allow users to "tag" content with descriptive tokens. But there is also huge source of implicit tags that they ignore: the text within web links. Moreover, these links represent a social network connecting the individuals and organizations who created the pages, and by using graph theory we can compute from this network an estimate of the reputation of each member. We plan to mine the web for these implicit tags, and use them together with the reputation hierarchy they embody to enhance web searches.How long do you think it would take them on average to realize that it was a description of Google?
What's the best thing you could be working on, and why aren't you?Most people will shy away from this question. I shy away from it myself; I see it there on the page and quickly move on to the next sentence. Hamming used to go around actually asking people this, and it didn't make him popular. But it's a question anyone ambitious should face.
January 2006
To do something well you have to like it. That idea is not exactly
novel. We've got it down to four words: "Do what you love." But
it's not enough just to tell people that. Doing what you love is
complicated.
The very idea is foreign to what most of us learn as kids. When I
was a kid, it seemed as if work and fun were opposites by definition.
Life had two states: some of the time adults were making you do
things, and that was called work; the rest of the time you could
do what you wanted, and that was called playing. Occasionally the
things adults made you do were fun, just as, occasionally, playing
wasn't — for example, if you fell and hurt yourself. But except
for these few anomalous cases, work was pretty much defined as
not-fun.
And it did not seem to be an accident. School, it was implied, was
tedious because it was preparation for grownup work.
The world then was divided into two groups, grownups and kids.
Grownups, like some kind of cursed race, had to work. Kids didn't,
but they did have to go to school, which was a dilute version of
work meant to prepare us for the real thing. Much as we disliked
school, the grownups all agreed that grownup work was worse, and
that we had it easy.
Teachers in particular all seemed to believe implicitly that work
was not fun. Which is not surprising: work wasn't fun for most of
them. Why did we have to memorize state capitals instead of playing
dodgeball? For the same reason they had to watch over a bunch of
kids instead of lying on a beach. You couldn't just do what you
wanted.
I'm not saying we should let little kids do whatever they want.
They may have to be made to work on certain things. But if we make
kids work on dull stuff, it might be wise to tell them that tediousness
is not the defining quality of work, and indeed that the reason
they have to work on dull stuff now is so they can work on more
interesting stuff later.
[1]
Once, when I was about 9 or 10, my father told me I could be whatever
I wanted when I grew up, so long as I enjoyed it. I remember that
precisely because it seemed so anomalous. It was like being told
to use dry water. Whatever I thought he meant, I didn't think he
meant work could literally be fun — fun like playing. It
took me years to grasp that.
Jobs
By high school, the prospect of an actual job was on the horizon.
Adults would sometimes come to speak to us about their work, or we
would go to see them at work. It was always understood that they
enjoyed what they did. In retrospect I think one may have: the
private jet pilot. But I don't think the bank manager really did.
The main reason they all acted as if they enjoyed their work was
presumably the upper-middle class convention that you're supposed
to. It would not merely be bad for your career to say that you
despised your job, but a social faux-pas.
Why is it conventional to pretend to like what you do? The first
sentence of this essay explains that. If you have to like something
to do it well, then the most successful people will all like what
they do. That's where the upper-middle class tradition comes from.
Just as houses all over America are full of
chairs
that are, without
the owners even knowing it, nth-degree imitations of chairs designed
250 years ago for French kings, conventional attitudes about work
are, without the owners even knowing it, nth-degree imitations of
the attitudes of people who've done great things.
What a recipe for alienation. By the time they reach an age to
think about what they'd like to do, most kids have been thoroughly
misled about the idea of loving one's work. School has trained
them to regard work as an unpleasant duty. Having a job is said
to be even more onerous than schoolwork. And yet all the adults
claim to like what they do. You can't blame kids for thinking "I
am not like these people; I am not suited to this world."
Actually they've been told three lies: the stuff they've been taught
to regard as work in school is not real work; grownup work is not
(necessarily) worse than schoolwork; and many of the adults around
them are lying when they say they like what they do.
The most dangerous liars can be the kids' own parents. If you take
a boring job to give your family a high standard of living, as so
many people do, you risk infecting your kids with the idea that
work is boring.
[2]
Maybe it would be better for kids in this one
case if parents were not so unselfish. A parent who set an example
of loving their work might help their kids more than an expensive
house.
[3]
It was not till I was in college that the idea of work finally broke
free from the idea of making a living. Then the important question
became not how to make money, but what to work on. Ideally these
coincided, but some spectacular boundary cases (like Einstein in
the patent office) proved they weren't identical.
The definition of work was now to make some original contribution
to the world, and in the process not to starve. But after the habit
of so many years my idea of work still included a large component
of pain. Work still seemed to require discipline, because only
hard problems yielded grand results, and hard problems couldn't
literally be fun. Surely one had to force oneself to work on them.
If you think something's supposed to hurt, you're less likely to
notice if you're doing it wrong. That about sums up my experience
of graduate school.
Bounds
How much are you supposed to like what you do? Unless you
know that, you don't know when to stop searching. And if, like most
people, you underestimate it, you'll tend to stop searching too
early. You'll end up doing something chosen for you by your parents,
or the desire to make money, or prestige — or sheer inertia.
Here's an upper bound: Do what you love doesn't mean, do what you
would like to do most this second. Even Einstein probably
had moments when he wanted to have a cup of coffee, but told himself
he ought to finish what he was working on first.
It used to perplex me when I read about people who liked what they
did so much that there was nothing they'd rather do. There didn't
seem to be any sort of work I liked that much. If I had a
choice of (a) spending the next hour working on something or (b)
be teleported to Rome and spend the next hour wandering about, was
there any sort of work I'd prefer? Honestly, no.
But the fact is, almost anyone would rather, at any given moment,
float about in the Carribbean, or have sex, or eat some delicious
food, than work on hard problems. The rule about doing what you
love assumes a certain length of time. It doesn't mean, do what
will make you happiest this second, but what will make you happiest
over some longer period, like a week or a month.
Unproductive pleasures pall eventually. After a while you get tired
of lying on the beach. If you want to stay happy, you have to do
something.
As a lower bound, you have to like your work more than any unproductive
pleasure. You have to like what you do enough that the concept of
"spare time" seems mistaken. Which is not to say you have to spend
all your time working. You can only work so much before you get
tired and start to screw up. Then you want to do something else
— even something mindless. But you don't regard this time as the
prize and the time you spend working as the pain you endure to earn
it.
I put the lower bound there for practical reasons. If your work
is not your favorite thing to do, you'll have terrible problems
with procrastination. You'll have to force yourself to work, and
when you resort to that the results are distinctly inferior.
To be happy I think you have to be doing something you not only
enjoy, but admire. You have to be able to say, at the end, wow,
that's pretty cool. This doesn't mean you have to make something.
If you learn how to hang glide, or to speak a foreign language
fluently, that will be enough to make you say, for a while at least,
wow, that's pretty cool. What there has to be is a test.
So one thing that falls just short of the standard, I think, is
reading books. Except for some books in math and the hard sciences,
there's no test of how well you've read a book, and that's why
merely reading books doesn't quite feel like work. You have to do
something with what you've read to feel productive.
I think the best test is one Gino Lee taught me: to try to do things
that would make your friends say wow. But it probably wouldn't
start to work properly till about age 22, because most people haven't
had a big enough sample to pick friends from before then.
Sirens
What you should not do, I think, is worry about the opinion of
anyone beyond your friends. You shouldn't worry about prestige.
Prestige is the opinion of the rest of the world. When you can ask
the opinions of people whose judgement you respect, what does it
add to consider the opinions of people you don't even know?
[4]
This is easy advice to give. It's hard to follow, especially when
you're young.
[5]
Prestige is like a powerful magnet that warps
even your beliefs about what you enjoy. It causes you to work not
on what you like, but what you'd like to like.
That's what leads people to try to write novels, for example. They
like reading novels. They notice that people who write them win
Nobel prizes. What could be more wonderful, they think, than to
be a novelist? But liking the idea of being a novelist is not
enough; you have to like the actual work of novel-writing if you're
going to be good at it; you have to like making up elaborate lies.
Prestige is just fossilized inspiration. If you do anything well
enough, you'll make it prestigious. Plenty of things we now
consider prestigious were anything but at first. Jazz comes to
mind — though almost any established art form would do. So just
do what you like, and let prestige take care of itself.
Prestige is especially dangerous to the ambitious. If you want to
make ambitious people waste their time on errands, the way to do
it is to bait the hook with prestige. That's the recipe for getting
people to give talks, write forewords, serve on committees, be
department heads, and so on. It might be a good rule simply to
avoid any prestigious task. If it didn't suck, they wouldn't have
had to make it prestigious.
Similarly, if you admire two kinds of work equally, but one is more
prestigious, you should probably choose the other. Your opinions
about what's admirable are always going to be slightly influenced
by prestige, so if the two seem equal to you, you probably have
more genuine admiration for the less prestigious one.
The other big force leading people astray is money. Money by itself
is not that dangerous. When something pays well but is regarded
with contempt, like telemarketing, or prostitution, or personal
injury litigation, ambitious people aren't tempted by it. That
kind of work ends up being done by people who are "just trying to
make a living." (Tip: avoid any field whose practitioners say
this.) The danger is when money is combined with prestige, as in,
say, corporate law, or medicine. A comparatively safe and prosperous
career with some automatic baseline prestige is dangerously tempting
to someone young, who hasn't thought much about what they really
like.
The test of whether people love what they do is whether they'd do
it even if they weren't paid for it — even if they had to work at
another job to make a living. How many corporate lawyers would do
their current work if they had to do it for free, in their spare
time, and take day jobs as waiters to support themselves?
This test is especially helpful in deciding between different kinds
of academic work, because fields vary greatly in this respect. Most
good mathematicians would work on math even if there were no jobs
as math professors, whereas in the departments at the other end of
the spectrum, the availability of teaching jobs is the driver:
people would rather be English professors than work in ad agencies,
and publishing papers is the way you compete for such jobs. Math
would happen without math departments, but it is the existence of
English majors, and therefore jobs teaching them, that calls into
being all those thousands of dreary papers about gender and identity
in the novels of Conrad. No one does
that
kind of thing for fun.
The advice of parents will tend to err on the side of money. It
seems safe to say there are more undergrads who want to be novelists
and whose parents want them to be doctors than who want to be doctors
and whose parents want them to be novelists. The kids think their
parents are "materialistic." Not necessarily. All parents tend to
be more conservative for their kids than they would for themselves,
simply because, as parents, they share risks more than rewards. If
your eight year old son decides to climb a tall tree, or your teenage
daughter decides to date the local bad boy, you won't get a share
in the excitement, but if your son falls, or your daughter gets
pregnant, you'll have to deal with the consequences.
Discipline
With such powerful forces leading us astray, it's not surprising
we find it so hard to discover what we like to work on. Most people
are doomed in childhood by accepting the axiom that work = pain.
Those who escape this are nearly all lured onto the rocks by prestige
or money. How many even discover something they love to work on?
A few hundred thousand, perhaps, out of billions.
It's hard to find work you love; it must be, if so few do. So don't
underestimate this task. And don't feel bad if you haven't succeeded
yet. In fact, if you admit to yourself that you're discontented,
you're a step ahead of most people, who are still in denial. If
you're surrounded by colleagues who claim to enjoy work that you
find contemptible, odds are they're lying to themselves. Not
necessarily, but probably.
Although doing great work takes less discipline than people think — because the way to do great work is to find something you like so
much that you don't have to force yourself to do it — finding
work you love does usually require discipline. Some people are
lucky enough to know what they want to do when they're 12, and just
glide along as if they were on railroad tracks. But this seems the
exception. More often people who do great things have careers with
the trajectory of a ping-pong ball. They go to school to study A,
drop out and get a job doing B, and then become famous for C after
taking it up on the side.
Sometimes jumping from one sort of work to another is a sign of
energy, and sometimes it's a sign of laziness. Are you dropping
out, or boldly carving a new path? You often can't tell yourself.
Plenty of people who will later do great things seem to be disappointments
early on, when they're trying to find their niche.
Is there some test you can use to keep yourself honest? One is to
try to do a good job at whatever you're doing, even if you don't
like it. Then at least you'll know you're not using dissatisfaction
as an excuse for being lazy. Perhaps more importantly, you'll get
into the habit of doing things well.
Another test you can use is: always produce. For example, if you
have a day job you don't take seriously because you plan to be a
novelist, are you producing? Are you writing pages of fiction,
however bad? As long as you're producing, you'll know you're not
merely using the hazy vision of the grand novel you plan to write
one day as an opiate. The view of it will be obstructed by the all
too palpably flawed one you're actually writing.
"Always produce" is also a heuristic for finding the work you love.
If you subject yourself to that constraint, it will automatically
push you away from things you think you're supposed to work on,
toward things you actually like. "Always produce" will discover
your life's work the way water, with the aid of gravity, finds the
hole in your roof.
Of course, figuring out what you like to work on doesn't mean you
get to work on it. That's a separate question. And if you're
ambitious you have to keep them separate: you have to make a conscious
effort to keep your ideas about what you want from being contaminated
by what seems possible.
[6]
It's painful to keep them apart, because it's painful to observe
the gap between them. So most people pre-emptively lower their
expectations. For example, if you asked random people on the street
if they'd like to be able to draw like Leonardo, you'd find most
would say something like "Oh, I can't draw." This is more a statement
of intention than fact; it means, I'm not going to try. Because
the fact is, if you took a random person off the street and somehow
got them to work as hard as they possibly could at drawing for the
next twenty years, they'd get surprisingly far. But it would require
a great moral effort; it would mean staring failure in the eye every
day for years. And so to protect themselves people say "I can't."
Another related line you often hear is that not everyone can do
work they love — that someone has to do the unpleasant jobs. Really?
How do you make them? In the US the only mechanism for forcing
people to do unpleasant jobs is the draft, and that hasn't been
invoked for over 30 years. All we can do is encourage people to
do unpleasant work, with money and prestige.
If there's something people still won't do, it seems as if society
just has to make do without. That's what happened with domestic
servants. For millennia that was the canonical example of a job
"someone had to do." And yet in the mid twentieth century servants
practically disappeared in rich countries, and the rich have just
had to do without.
So while there may be some things someone has to do, there's a good
chance anyone saying that about any particular job is mistaken.
Most unpleasant jobs would either get automated or go undone if no
one were willing to do them.
Two Routes
There's another sense of "not everyone can do work they love"
that's all too true, however. One has to make a living, and it's
hard to get paid for doing work you love. There are two routes to
that destination:
The organic route: as you become more eminent, gradually to increase the parts of your job that you like at the expense of those you don't.The organic route is more common. It happens naturally to anyone who does good work. A young architect has to take whatever work he can get, but if he does well he'll gradually be in a position to pick and choose among projects. The disadvantage of this route is that it's slow and uncertain. Even tenure is not real freedom.
The two-job route: to work at things you don't like to get money to work on things you do.
Also, common spelling errors will tend to get fixed. For example, if users searching for "compact disc player" end up spending considerable money at sites offering compact disc players, then those pages will have a higher relevance for that search phrase, even though the phrase "compact disc player" is not present on those pages.(That "compat disc player" wasn't a typo, guys.)
What is our purpose? Well, we humans are as conspicuously different from other animals as the anteater. In our case the distinguishing feature is the ability to reason. So obviously that is what we should be doing, and a human who doesn't is doing a bad job of being human — is no better than an animal.Now we'd give a different answer. At least, someone Socrates's age would. We'd ask why we even suppose we have a "purpose" in life. We may be better adapted for some things than others; we may be happier doing things we're adapted for; but why assume purpose?
a) Your housemate did it deliberately to upset you. He knew you were saving that piece of cake.I say pick b. No one knows who said "never attribute to malice what can be explained by incompetence," but it is a powerful idea. Its more general version is our answer to the Greeks:
b) Your housemate was hungry.
Don't see purpose where there isn't.Or better still, the positive version:
See randomness.
enterprise content management solutions for business that enable organizations to unify people, content and processes to minimize business risk, accelerate time-to-value and sustain lower total cost of ownership.An established company may get away with such an opaque description, but no startup can. A startup should be able to explain in one or two sentences exactly what it does. [4] And not just to users. You need this for everyone: investors, acquirers, partners, reporters, potential employees, and even current employees. You probably shouldn't even start a company to do something that can't be described compellingly in one or two sentences.
June 2006
(This essay is derived from talks at Usenix 2006 and
Railsconf 2006.)
A couple years ago my friend Trevor and I went to look at the Apple
garage. As we stood there, he said that as a kid growing up in
Saskatchewan he'd been amazed at the dedication Jobs and Wozniak
must have had to work in a garage.
"Those guys must have been
freezing!"
That's one of California's hidden advantages: the mild climate means
there's lots of marginal space. In cold places that margin gets
trimmed off. There's a sharper line between outside and inside,
and only projects that are officially sanctioned — by organizations,
or parents, or wives, or at least by oneself — get proper indoor
space. That raises the activation energy for new ideas. You can't
just tinker. You have to justify.
Some of Silicon Valley's most famous companies began in garages:
Hewlett-Packard in 1938, Apple in 1976, Google in 1998. In Apple's
case the garage story is a bit of an urban legend. Woz says all
they did there was assemble some computers, and that he did all the
actual design of the Apple I and Apple II in his apartment or his
cube at HP.
[1]
This was apparently too marginal even for Apple's PR
people.
By conventional standards, Jobs and Wozniak were marginal people
too. Obviously they were smart, but they can't have looked good
on paper. They were at the time a pair of college dropouts with
about three years of school between them, and hippies to boot.
Their previous business experience consisted of making "blue boxes"
to hack into the phone system, a business with the rare distinction
of being both illegal and unprofitable.
Outsiders
Now a startup operating out of a garage in Silicon Valley would
feel part of an exalted tradition, like the poet in his garret, or
the painter who can't afford to heat his studio and thus has to
wear a beret indoors. But in 1976 it didn't seem so cool. The
world hadn't yet realized that starting a computer company was in
the same category as being a writer or a painter. It hadn't been
for long. Only in the preceding couple years had the dramatic fall
in the cost of hardware allowed outsiders to compete.
In 1976, everyone looked down on a company operating out of a garage,
including the founders. One of the first things Jobs did when they
got some money was to rent office space. He wanted Apple to seem
like a real company.
They already had something few real companies ever have: a fabulously well
designed product. You'd think they'd have had more confidence.
But I've talked to a lot of startup founders, and it's always this
way. They've built something that's going to change the world, and
they're worried about some nit like not having proper business
cards.
That's the paradox I want to explore: great new things often come
from the margins, and yet the people who discover them are looked
down on by everyone, including themselves.
It's an old idea that new things come from the margins. I want to
examine its internal structure. Why do great ideas come from the
margins? What kind of ideas? And is there anything we can do to
encourage the process?
Insiders
One reason so many good ideas come from the margin is simply that
there's so much of it. There have to be more outsiders than insiders,
if insider means anything. If the number of outsiders is huge it
will always seem as if a lot of ideas come from them, even if few
do per capita. But I think there's more going on than this. There
are real disadvantages to being an insider, and in some kinds of
work they can outweigh the advantages.
Imagine, for example, what would happen if the government decided
to commission someone to write an official Great American Novel.
First there'd be a huge ideological squabble over who to choose.
Most of the best writers would be excluded for having offended one
side or the other. Of the remainder, the smart ones would refuse
such a job, leaving only a few with the wrong sort of ambition.
The committee would choose one at the height of his career — that
is, someone whose best work was behind him — and hand over the
project with copious free advice about how the book should show in
positive terms the strength and diversity of the American people,
etc, etc.
The unfortunate writer would then sit down to work with a huge
weight of expectation on his shoulders. Not wanting to blow such
a public commission, he'd play it safe. This book had better command
respect, and the way to ensure that would be to make it a tragedy.
Audiences have to be enticed to laugh, but if you kill people they
feel obliged to take you seriously. As everyone knows, America
plus tragedy equals the Civil War, so that's what it would have to
be about. When finally
completed twelve years later, the book would be a 900-page pastiche
of existing popular novels — roughly Gone with the Wind plus
Roots. But its bulk and celebrity would make it a bestseller
for a few months, until blown out of the water by a talk-show host's
autobiography. The book would be made into a movie and thereupon
forgotten, except by the more waspish sort of reviewers, among whom
it would be a byword for bogusness like Milli Vanilli or Battlefield
Earth.
Maybe I got a little carried away with this example. And yet is
this not at each point the way such a project would play out? The
government knows better than to get into the novel business, but
in other fields where they have a natural monopoly, like nuclear
waste dumps, aircraft carriers, and regime change, you'd find plenty
of projects isomorphic to this one — and indeed, plenty that were
less successful.
This little thought experiment suggests a few of the disadvantages
of insider projects: the selection of the wrong kind of people, the
excessive scope, the inability to take risks, the need to seem
serious, the weight of expectations, the power of vested interests,
the undiscerning audience, and perhaps most dangerous, the tendency
of such work to become a duty rather than a pleasure.
Tests
A world with outsiders and insiders implies some kind of test for
distinguishing between them. And the trouble with most tests for
selecting elites is that there are two ways to pass them: to be
good at what they try to measure, and to be good at hacking the
test itself.
So the first question to ask about a field is how honest its tests
are, because this tells you what it means to be an outsider. This
tells you how much to trust your instincts when you disagree with
authorities, whether it's worth going through the usual channels
to become one yourself, and perhaps whether you want to work in
this field at all.
Tests are least hackable when there are consistent standards for
quality, and the people running the test really care about its
integrity. Admissions to PhD programs in the hard sciences are
fairly honest, for example. The professors will get whoever they
admit as their own grad students, so they try hard to choose well,
and they have a fair amount of data to go on. Whereas undergraduate
admissions seem to be much more hackable.
One way to tell whether a field has consistent standards is the
overlap between the leading practitioners and the people who teach
the subject in universities. At one end of the scale you have
fields like math and physics, where nearly all the teachers are
among the best practitioners. In the middle are medicine, law,
history, architecture, and computer science, where many are. At
the bottom are business, literature, and the visual arts, where
there's almost no overlap between the teachers and the leading
practitioners. It's this end that gives rise to phrases like "those
who can't do, teach."
Incidentally, this scale might be helpful in deciding what to study
in college. When I was in college the rule seemed to be that you
should study whatever you were most interested in. But in retrospect
you're probably better off studying something moderately interesting
with someone who's good at it than something very interesting with
someone who isn't. You often hear people say that you shouldn't
major in business in college, but this is actually an instance of
a more general rule: don't learn things from teachers who are bad
at them.
How much you should worry about being an outsider depends on the
quality of the insiders. If you're an amateur mathematician and
think you've solved a famous open problem, better go back and check.
When I was in grad school, a friend in the math department had the
job of replying to people who sent in proofs of Fermat's last theorem
and so on, and it did not seem as if he saw it as a valuable source
of tips — more like manning a mental health hotline. Whereas if
the stuff you're writing seems different from what English professors
are interested in, that's not necessarily a problem.
Anti-Tests
Where the method of selecting the elite is thoroughly corrupt, most
of the good people will be outsiders. In art, for example, the
image of the poor, misunderstood genius is not just one possible
image of a great artist: it's the standard image. I'm not
saying it's correct, incidentally, but it is telling how well this
image has stuck. You couldn't make a rap like that stick to math
or medicine.
[2]
If it's corrupt enough, a test becomes an anti-test, filtering out
the people it should select by making them to do things only the
wrong people would do. Popularity in high school
seems to be such a test. There are plenty of similar ones in the grownup
world. For example, rising up through the hierarchy of the average
big company demands an attention to politics few thoughtful people
could spare.
[3]
Someone like Bill Gates can grow a company under
him, but it's hard to imagine him having the patience to climb the
corporate ladder at General Electric — or Microsoft, actually.
It's kind of strange when you think about it, because lord-of-the-flies
schools and bureaucratic companies are both the default. There are
probably a lot of people who go from one to the other and never
realize the whole world doesn't work this way.
I think that's one reason big companies are so often blindsided by
startups.
People at big companies don't realize the extent to which
they live in an environment that is one large, ongoing test for the
wrong qualities.
If you're an outsider, your best chances for beating insiders are
obviously in fields where corrupt tests select a lame elite. But
there's a catch: if the tests are corrupt, your victory won't be
recognized, at least in your lifetime. You may feel you don't need
that, but history suggests it's dangerous to work in fields with
corrupt tests. You may beat the insiders, and yet not do as good
work, on an absolute scale, as you would in a field that was more
honest.
Standards in art, for example, were almost as corrupt in the first
half of the eighteenth century as they are today. This was the era
of those fluffy idealized portraits of countesses with their lapdogs.
Chardin
decided to skip all that and paint ordinary things as he
saw them. He's now considered the best of that period — and yet
not the equal of Leonardo or Bellini or Memling, who all had the
additional encouragement of honest standards.
It can be worth participating in a corrupt contest, however, if
it's followed by another that isn't corrupt. For example, it would
be worth competing with a company that can spend more than you on
marketing, as long as you can survive to the next round, when
customers compare your actual products. Similarly, you shouldn't
be discouraged by the comparatively corrupt test of college admissions,
because it's followed immediately by less hackable tests.
[4]
Risk
Even in a field with honest tests, there are still advantages to
being an outsider. The most obvious is that outsiders have nothing
to lose. They can do risky things, and if they fail, so what? Few
will even notice.
The eminent, on the other hand, are weighed down by their eminence.
Eminence is like a suit: it impresses the wrong people, and it
constrains the wearer.
Outsiders should realize the advantage they have here. Being able
to take risks is hugely valuable. Everyone values safety too much,
both the obscure and the eminent. No one wants to look like a fool.
But it's very useful to be able to. If most of your ideas aren't
stupid, you're probably being too conservative. You're not bracketing
the problem.
Lord Acton said we should judge talent at its best and character
at its worst. For example, if you write one great book and ten bad
ones, you still count as a great writer — or at least, a better
writer than someone who wrote eleven that were merely good. Whereas
if you're a quiet, law-abiding citizen most of the time but
occasionally cut someone up and bury them in your backyard, you're
a bad guy.
Almost everyone makes the mistake of treating ideas as if they were
indications of character rather than talent — as if having a stupid
idea made you stupid. There's a huge weight of tradition advising
us to play it safe. "Even a fool is thought wise if he keeps
silent," says the Old Testament (Proverbs 17:28).
Well, that may be fine advice for a bunch of goatherds in Bronze
Age Palestine. There conservatism would be the order of the day.
But times have changed. It might still be reasonable to stick with
the Old Testament in political questions, but materially the world
now has a lot more state. Tradition is less of a guide, not just
because things change faster, but because the space of possibilities
is so large. The more complicated the world gets, the more valuable
it is to be willing to look like a fool.
Delegation
And yet the more successful people become, the more heat they get
if they screw up — or even seem to screw up. In this respect, as
in many others, the eminent are prisoners of their own success. So
the best way to understand the advantages of being an outsider may
be to look at the disadvantages of being an insider.
If you ask eminent people what's wrong with their lives, the first
thing they'll complain about is the lack of time. A friend of mine
at Google is fairly high up in the company and went to work for
them long before they went public. In other words, he's now rich
enough not to have to work. I asked him if he could still endure
the annoyances of having a job, now that he didn't have to. And
he said that there weren't really any annoyances, except — and he
got a wistful look when he said this — that he got so much
email.
The eminent feel like everyone wants to take a bite out of them.
The problem is so widespread that people pretending to be eminent
do it by pretending to be overstretched.
The lives of the eminent become scheduled, and that's not good for
thinking. One of the great advantages of being an outsider is long,
uninterrupted blocks of time. That's what I remember about grad
school: apparently endless supplies of time, which I spent worrying
about, but not writing, my dissertation. Obscurity is like health
food — unpleasant, perhaps, but good for you. Whereas fame tends
to be like the alcohol produced by fermentation. When it reaches
a certain concentration, it kills off the yeast that produced it.
The eminent generally respond to the shortage of time by turning
into managers. They don't have time to work. They're surrounded
by junior people they're supposed to help or supervise. The obvious
solution is to have the junior people do the work. Some good
stuff happens this way, but there are problems it doesn't work so
well for: the kind where it helps to have everything in one head.
For example, it recently emerged that the famous glass artist Dale
Chihuly hasn't actually blown glass for 27 years. He has assistants
do the work for him. But one of the most valuable sources of ideas
in the visual arts is the resistance of the medium. That's why oil
paintings look so different from watercolors. In principle you
could make any mark in any medium; in practice the medium steers
you. And if you're no longer doing the work yourself, you stop
learning from this.
So if you want to beat those eminent enough to delegate, one way
to do it is to take advantage of direct contact with the medium.
In the arts it's obvious how: blow your own glass, edit your own
films, stage your own plays. And in the process pay close attention
to accidents and to new ideas you have on the fly. This technique
can be generalized to any sort of work: if you're an outsider, don't
be ruled by plans. Planning is often just a weakness forced on
those who delegate.
Is there a general rule for finding problems best solved in one
head? Well, you can manufacture them by taking any project usually
done by multiple people and trying to do it all yourself. Wozniak's
work was a classic example: he did everything himself, hardware and
software, and the result was miraculous. He claims not one bug was
ever found in the Apple II, in either hardware or software.
Another way to find good problems to solve in one head is to focus
on the grooves in the chocolate bar — the places where tasks are
divided when they're split between several people. If you want to
beat delegation, focus on a vertical slice: for example, be both
writer and editor, or both design buildings and construct them.
One especially good groove to span is the one between tools and
things made with them. For example, programming languages and
applications are usually written by different people, and this is
responsible for a lot of the worst flaws in
programming languages.
I think every language should be designed simultaneously with a
large application written in it, the way C was with Unix.
Techniques for competing with delegation translate well into business,
because delegation is endemic there. Instead of avoiding it as a
drawback of senility, many companies embrace it as a sign of maturity.
In big companies software is often designed, implemented, and sold
by three separate types of people. In startups one person may have
to do all three. And though this feels stressful, it's one reason
startups win. The needs of customers and the means of satisfying
them are all in one head.
Focus
The very skill of insiders can be a weakness. Once someone is good
at something, they tend to spend all their time doing that. This
kind of focus is very valuable, actually. Much of the skill of
experts is the ability to ignore false trails. But focus has
drawbacks: you don't learn from other fields, and when a new approach
arrives, you may be the last to notice.
For outsiders this translates into two ways to win. One is to work
on a variety of things. Since you can't derive as much benefit
(yet) from a narrow focus, you may as well cast a wider net and
derive what benefit you can from similarities between fields. Just
as you can compete with delegation by working on larger vertical
slices, you can compete with specialization by working on larger
horizontal slices — by both writing and illustrating your book, for
example.
The second way to compete with focus is to see what focus overlooks.
In particular, new things. So if you're not good at anything yet,
consider working on something so new that no one else is either.
It won't have any prestige yet, if no one is good at it, but you'll
have it all to yourself.
The potential of a new medium is usually underestimated, precisely
because no one has yet explored its possibilities. Before
Durer
tried making engravings, no one took them very seriously. Engraving
was for making little devotional images — basically fifteenth century
baseball cards of saints. Trying to make masterpieces in this
medium must have seemed to Durer's contemporaries the way that,
say, making masterpieces in
comics
might seem to the average person
today.
In the computer world we get not new mediums but new platforms: the
minicomputer, the microprocessor, the web-based application. At
first they're always dismissed as being unsuitable for real work.
And yet someone always decides to try anyway, and it turns out you
can do more than anyone expected. So in the future when you hear
people say of a new platform: yeah, it's popular and cheap, but not
ready yet for real work, jump on it.
As well as being more comfortable working on established lines,
insiders generally have a vested interest in perpetuating them.
The professor who made his reputation by discovering some new idea
is not likely to be the one to discover its replacement. This is
particularly true with companies, who have not only skill and pride
anchoring them to the status quo, but money as well. The Achilles
heel of successful companies is their inability to cannibalize
themselves. Many innovations consist of replacing something with
a cheaper alternative, and companies just don't want to see a path
whose immediate effect is to cut an existing source of revenue.
So if you're an outsider you should actively seek out contrarian
projects. Instead of working on things the eminent have made
prestigious, work on things that could steal that prestige.
The really juicy new approaches are not the ones insiders reject
as impossible, but those they ignore as undignified. For example,
after Wozniak designed the Apple II he offered it first to his
employer, HP. They passed. One of the reasons was that, to save
money, he'd designed the Apple II to use a TV as a monitor, and HP
felt they couldn't produce anything so declasse.
Less
Wozniak used a TV as a monitor for the simple reason that he couldn't
afford a monitor. Outsiders are not merely free but compelled to
make things that are cheap and lightweight. And both are good bets
for growth: cheap things spread faster, and lightweight things
evolve faster.
The eminent, on the other hand, are almost forced to work on a large
scale. Instead of garden sheds they must design huge art museums.
One reason they work on big things is that they can: like our
hypothetical novelist, they're flattered by such opportunities.
They also know that big projects will by their sheer bulk impress
the audience. A garden shed, however lovely, would be easy to
ignore; a few might even snicker at it. You can't snicker at a
giant museum, no matter how much you dislike it. And finally, there
are all those people the eminent have working for them; they have
to choose projects that can keep them all busy.
Outsiders are free of all this. They can work on small things, and
there's something very pleasing about small things. Small things
can be perfect; big ones always have something wrong with them.
But there's a
magic
in small things that goes beyond such rational
explanations. All kids know it. Small things have more personality.
Plus making them is more fun. You can do what you want; you don't
have to satisfy committees. And perhaps most important, small
things can be done fast. The prospect of seeing the finished project
hangs in the air like the smell of dinner cooking. If you work
fast, maybe you could have it done tonight.
Working on small things is also a good way to learn. The most
important kinds of learning happen one project at a time. ("Next
time, I won't...") The faster you cycle through projects, the
faster you'll evolve.
Plain materials have a charm like small scale. And in addition
there's the challenge of making do with less. Every designer's
ears perk up at the mention of that game, because it's a game you
can't lose. Like the JV playing the varsity, if you even tie, you
win. So paradoxically there are cases where fewer resources yield
better results, because the designers' pleasure at their own ingenuity
more than compensates.
[5]
So if you're an outsider, take advantage of your ability to make
small and inexpensive things. Cultivate the pleasure and simplicity
of that kind of work; one day you'll miss it.
Responsibility
When you're old and eminent, what will you miss about being young
and obscure? What people seem to miss most is the lack of
responsibilities.
Responsibility is an occupational disease of eminence. In principle
you could avoid it, just as in principle you could avoid getting
fat as you get old, but few do. I sometimes suspect that responsibility
is a trap and that the most virtuous route would be to shirk it,
but regardless it's certainly constraining.
When you're an outsider you're constrained too, of course. You're
short of money, for example. But that constrains you in different
ways. How does responsibility constrain you? The worst thing is
that it allows you not to focus on real work. Just as the most
dangerous forms of
procrastination
are those that seem like work,
the danger of responsibilities is not just that they can consume a
whole day, but that they can do it without setting off the
kind of alarms you'd set off if you spent a whole day sitting on a
park bench.
A lot of the pain of being an outsider is being aware of one's own
procrastination. But this is actually a good thing. You're at
least close enough to work that the smell of it makes you hungry.
As an outsider, you're just one step away from getting things done.
A huge step, admittedly, and one that most people never seem to
make, but only one step. If you can summon up the energy to get
started, you can work on projects with an intensity (in both senses)
that few insiders can match. For insiders work turns into a duty,
laden with responsibilities and expectations. It's never so pure
as it was when they were young.
Work like a dog being taken for a walk, instead of an ox being yoked
to the plow. That's what they miss.
Audience
A lot of outsiders make the mistake of doing the opposite; they
admire the eminent so much that they copy even their flaws. Copying
is a good way to learn, but copy the right things. When I was in
college I imitated the pompous diction of famous professors. But
this wasn't what made them eminent — it was more a flaw their
eminence had allowed them to sink into. Imitating it was like
pretending to have gout in order to seem rich.
Half the distinguishing qualities of the eminent are actually
disadvantages. Imitating these is not only a waste of time, but
will make you seem a fool to your models, who are often well aware
of it.
What are the genuine advantages of being an insider? The greatest
is an audience. It often seems to outsiders that the great advantage
of insiders is money — that they have the resources to do what they
want. But so do people who inherit money, and that doesn't seem
to help, not as much as an audience. It's good for morale to know
people want to see what you're making; it draws work out of you.
If I'm right that the defining advantage of insiders is an audience,
then we live in exciting times, because just in the last ten years
the Internet has made audiences a lot more liquid. Outsiders don't
have to content themselves anymore with a proxy audience of a few
smart friends. Now, thanks to the Internet, they can start to grow
themselves actual audiences. This is great news for the marginal,
who retain the advantages of outsiders while increasingly being
able to siphon off what had till recently been the prerogative of
the elite.
Though the Web has been around for more than ten years, I think
we're just beginning to see its democratizing effects. Outsiders
are still learning how to steal audiences. But more importantly,
audiences are still learning how to be stolen — they're still just
beginning to realize how much
deeper bloggers can dig than
journalists, how much
more interesting
a democratic news site can be than a
front page controlled by editors, and how much
funnier
a bunch of kids
with webcams can be than mass-produced sitcoms.
The big media companies shouldn't worry that people will post their
copyrighted material on YouTube. They should worry that people
will post their own stuff on YouTube, and audiences will watch that
instead.
Hacking
If I had to condense the power of the marginal into one sentence
it would be: just try hacking something together. That phrase draws
in most threads I've mentioned here. Hacking something together
means deciding what to do as you're doing it, not a subordinate
executing the vision of his boss. It implies the result won't
be pretty, because it will be made quickly out of inadequate
materials. It may work, but it won't be the sort of thing the
eminent would want to put their name on. Something hacked together
means something that barely solves the problem, or maybe doesn't
solve the problem at all, but another you discovered en route. But
that's ok, because the main value of that initial version is not the
thing itself, but what it leads to. Insiders who daren't walk
through the mud in their nice clothes will never make it to the
solid ground on the other side.
The word "try" is an especially valuable component. I disagree
here with Yoda, who said there is no try. There is try. It implies
there's no punishment if you fail. You're driven by curiosity
instead of duty. That means the wind of procrastination will be
in your favor: instead of avoiding this work, this will be what you
do as a way of avoiding other work. And when you do it, you'll be
in a better mood. The more the work depends on imagination, the
more that matters, because most people have more ideas when they're
happy.
If I could go back and redo my twenties, that would be one thing
I'd do more of: just try hacking things together. Like many people
that age, I spent a lot of time worrying about what I should do.
I also spent some time trying to build stuff. I should have spent
less time worrying and more time building. If you're not sure what
to do, make something.
Raymond Chandler's advice to thriller writers was "When in doubt,
have a man come through a door with a gun in his hand." He followed
that advice. Judging from his books, he was often in doubt. But
though the result is occasionally cheesy, it's never boring. In
life, as in books, action is underrated.
Fortunately the number of things you can just hack together keeps
increasing. People fifty years ago would be astonished that one
could just hack together a movie, for example. Now you can even
hack together distribution. Just make stuff and put it online.
Inappropriate
If you really want to score big, the place to focus is the margin
of the margin: the territories only recently captured from the
insiders. That's where you'll find the juiciest projects still
undone, either because they seemed too risky, or simply because
there were too few insiders to explore everything.
This is why I spend most of my time writing
essays lately. The
writing of essays used to be limited to those who could get them
published. In principle you could have written them and just shown
them to your friends; in practice that didn't work.
[6]
An
essayist needs the resistance of an audience, just as an engraver
needs the resistance of the plate.
Up till a few years ago, writing essays was the ultimate insider's
game. Domain experts were allowed to publish essays about their
field, but the pool allowed to write on general topics was about
eight people who went to the right parties in New York. Now the
reconquista has overrun this territory, and, not surprisingly, found
it sparsely cultivated. There are so many essays yet unwritten.
They tend to be the naughtier ones; the insiders have pretty much
exhausted the motherhood and apple pie topics.
This leads to my final suggestion: a technique for determining when
you're on the right track. You're on the right track when people
complain that you're unqualified, or that you've done something
inappropriate. If people are complaining, that means you're doing
something rather than sitting around, which is the first step. And
if they're driven to such empty forms of complaint, that means
you've probably done something good.
If you make something and people complain that it doesn't work,
that's a problem. But if the worst thing they can hit you with is
your own status as an outsider, that implies that in every other
respect you've succeeded. Pointing out that someone is unqualified
is as desperate as resorting to racial slurs. It's just a legitimate
sounding way of saying: we don't like your type around here.
But the best thing of all is when people call what you're doing
inappropriate. I've been hearing this word all my life and I only
recently realized that it is, in fact, the sound of the homing
beacon. "Inappropriate" is the null criticism. It's merely the
adjective form of "I don't like it."
So that, I think, should be the highest goal for the marginal. Be
inappropriate. When you hear people saying that, you're golden.
And they, incidentally, are busted.
Notes
[1]
The facts about Apple's early history are from an interview
with Steve
Wozniak in Jessica Livingston's
Founders at Work.
[2]
As usual the popular image is several decades behind reality.
Now the misunderstood artist is not a chain-smoking drunk who pours
his soul into big, messy canvases that philistines see and say
"that's not art" because it isn't a picture of anything. The
philistines have now been trained that anything hung on a wall
is art. Now the misunderstood artist is a coffee-drinking vegan
cartoonist whose work they see and say "that's not art" because it
looks like stuff they've seen in the Sunday paper.
[3]
In fact this would do fairly well as a definition of politics:
what determines rank in the absence of objective tests.
[4]
In high school you're led to believe your whole future depends
on where you go to college, but it turns out only to buy you a couple
years. By your mid-twenties the people worth impressing
already judge you more by what
you've done than where you went to school.
[5]
Managers are presumably wondering, how can I make this miracle
happen? How can I make the people working for me do more with less?
Unfortunately the constraint probably has to be self-imposed. If
you're expected to do more with less, then you're being
starved, not eating virtuously.
[6]
Without the prospect of publication, the closest most people
come to writing essays is to write in a journal. I find I never
get as deeply into subjects as I do in proper essays. As the name
implies, you don't go back and rewrite journal entries over
and over for two weeks.
Thanks to Sam Altman, Trevor Blackwell, Paul Buchheit, Sarah
Harlin, Jessica Livingston, Jackie McDonough, Robert Morris, Olin
Shivers, and Chris Small for reading drafts of this, and to Chris
Small and Chad Fowler for inviting me to speak.


Comment on this essay.
August 2006, rev. April 2007, September 2010
In a few days it will be Demo Day, when the startups we funded
this summer present to investors. Y Combinator funds startups twice
a year, in January and June. Ten weeks later we invite all the
investors we know to hear them present what they've built so far.
Ten weeks is not much time. The average startup probably doesn't
have much to show for itself after ten weeks. But the average
startup fails. When you look at the ones that went on to do great
things, you find a lot that began with someone pounding out a
prototype in a week or two of nonstop work. Startups are a
counterexample to the rule that haste makes waste.
(Too much money seems to be as bad for startups as too much time,
so we don't give them much money either.)
A week before Demo Day, we have a dress rehearsal called Rehearsal Day.
At other Y Combinator events we allow outside guests, but not at
Rehearsal Day. No one except the other founders gets to see the rehearsals.
The presentations on Rehearsal Day are often pretty rough. But this is
to be expected. We try to pick founders who are good at building
things, not ones who are slick presenters. Some of the founders
are just out of college, or even still in it, and have never spoken
to a group of people they didn't already know.
So we concentrate on the basics. On Demo Day each startup will
only get ten minutes, so we encourage them to focus on just two
goals: (a) explain what you're doing, and (b) explain why users
will want it.
That might sound easy, but it's not when the speakers have no
experience presenting, and they're explaining technical matters to
an audience that's mostly non-technical.
This situation is constantly repeated when startups present to
investors: people who are bad at explaining, talking to people who
are bad at understanding. Practically every successful startup,
including stars like Google, presented at some point to investors
who didn't get it and turned them down. Was it because the founders
were bad at presenting, or because the investors were obtuse? It's
probably always some of both.
At the most recent Rehearsal Day, we four Y Combinator partners found
ourselves saying a lot of the same things we said at the last two.
So at dinner afterward we collected all our tips about presenting
to investors. Most startups face similar challenges, so we hope
these will be useful to a wider audience.
1. Explain what you're doing.
Investors' main question when judging a very early startup is whether
you've made a compelling product. Before they can judge whether
you've built a good x, they have to understand what kind of x you've
built. They will get very frustrated if instead of telling them
what you do, you make them sit through some kind of preamble.
Say what you're doing as soon as possible, preferably in the first
sentence. "We're Jeff and Bob and we've built an easy to use web-based
database. Now we'll show it to you and explain why people need
this."
If you're a great public speaker you may be able to violate this
rule. Last year one founder spent the whole first half of his talk
on a fascinating analysis of the limits of the conventional desktop
metaphor. He got away with it, but unless you're a captivating
speaker, which most hackers aren't, it's better to play it safe.
2. Get rapidly to demo.
This section is now obsolete for YC founders presenting
at Demo Day, because Demo Day presentations are now so short
that they rarely include much if any demo. They seem to work
just as well without, however, which makes me think I was
wrong to emphasize demos so much before.
A demo explains what you've made more effectively than any verbal
description. The only thing worth talking about first is the problem
you're trying to solve and why it's important. But don't spend
more than a tenth of your time on that. Then demo.
When you demo, don't run through a catalog of features. Instead
start with the problem you're solving, and then show how your product
solves it. Show features in an order driven by some kind of purpose,
rather than the order in which they happen to appear on the screen.
If you're demoing something web-based, assume that the network
connection will mysteriously die 30 seconds into your presentation,
and come prepared with a copy of the server software running on
your laptop.
3. Better a narrow description than a vague one.
One reason founders resist describing their projects concisely is
that, at this early stage, there are all kinds of possibilities.
The most concise descriptions seem misleadingly narrow. So for
example a group that has built an easy web-based database might
resist calling their applicaton that, because it could be so much
more. In fact, it could be anything...
The problem is, as you approach (in the calculus sense) a description
of something that could be anything, the content of your description
approaches zero. If you describe your web-based database as "a
system to allow people to collaboratively leverage the value of
information," it will go in one investor ear and out the other.
They'll just discard that sentence as meaningless boilerplate, and
hope, with increasing impatience, that in the next sentence you'll
actually explain what you've made.
Your primary goal is not to describe everything your system might
one day become, but simply to convince investors you're worth talking
to further. So approach this like an algorithm that gets the right
answer by successive approximations. Begin with a description
that's gripping but perhaps overly narrow, then flesh it out to the
extent you can. It's the same principle as incremental development:
start with a simple prototype, then add features, but at every point
have working code. In this case, "working code" means a working
description in the investor's head.
4. Don't talk and drive.
Have one person talk while another uses the computer. If the same
person does both, they'll inevitably mumble downwards at the computer
screen instead of talking clearly at the audience.
As long as you're standing near the audience and looking at them,
politeness (and habit) compel them to pay attention to you. Once
you stop looking at them to fuss with something on your computer,
their minds drift off to the errands they have to run later.
5. Don't talk about secondary matters at length.
If you only have a few minutes, spend them explaining what your
product does and why it's great. Second order issues like competitors
or resumes should be single slides you go through quickly at the
end. If you have impressive resumes, just flash them on the screen
for 15 seconds and say a few words. For competitors, list the top
3 and explain in one sentence each what they lack
that you have. And put this kind of thing at the end, after you've
made it clear what you've built.
6. Don't get too deeply into business models.
It's good to talk about how you plan to make money, but mainly
because it shows you care about that and have thought about it.
Don't go into detail about your business model, because (a) that's
not what smart investors care about in a brief presentation, and
(b) any business model you have at this point is probably wrong
anyway.
Recently a VC who came to speak at Y Combinator talked about a
company he just invested in. He said their business model was wrong
and would probably change three times before they got it right.
The founders were experienced guys who'd done startups before and
who'd just succeeded in getting millions from one of the top VC
firms, and even their business model was crap. (And yet he invested
anyway, because he expected it to be crap at this stage.)
If you're solving an important problem, you're going to sound a lot
smarter talking about that than the business model. The business
model is just a bunch of guesses, and guesses about stuff that's
probably not your area of expertise. So don't spend your precious
few minutes talking about crap when you could be talking about
solid, interesting things you know a lot about: the problem you're
solving and what you've built so far.
As well as being a bad use of time, if your business model seems
spectacularly wrong, that will push the stuff you want investors
to remember out of their heads. They'll just remember you as the
company with the boneheaded plan for making money, rather than the
company that solved that important problem.
7. Talk slowly and clearly at the audience.
Everyone at Rehearsal Day could see the difference between the people
who'd been out in the world for a while and had presented to groups,
and those who hadn't.
You need to use a completely different voice and manner talking to
a roomful of people than you would in conversation. Everyday life
gives you no practice in this. If you can't already do it, the
best solution is to treat it as a consciously artificial trick,
like juggling.
However, that doesn't mean you should talk like some kind of
announcer. Audiences tune that out. What you need to do is talk
in this artificial way, and yet make it seem conversational. (Writing
is the same. Good writing is an elaborate effort to seem spontaneous.)
If you want to write out your whole presentation beforehand and
memorize it, that's ok. That has worked for some groups in the
past. But make sure to write something that sounds like spontaneous,
informal speech, and deliver it that way too.
Err on the side of speaking slowly. At Rehearsal Day, one of the founders
mentioned a rule actors use: if you feel you're speaking too slowly,
you're speaking at about the right speed.
8. Have one person talk.
Startups often want to show that all the founders are equal partners.
This is a good instinct; investors dislike unbalanced teams. But
trying to show it by partitioning the presentation is going too
far. It's distracting. You can demonstrate your respect
for one another in more subtle ways. For example, when one of the
groups presented at Demo Day, the more extroverted of the two
founders did most of the talking, but he described his co-founder
as the best hacker he'd ever met, and you could tell he meant it.
Pick the one or at most two best speakers, and have them do most
of the talking.
Exception: If one of the founders is an expert in some specific
technical field, it can be good for them to talk about that for a
minute or so. This kind of "expert witness" can add credibility,
even if the audience doesn't understand all the details. If Jobs
and Wozniak had 10 minutes to present the Apple II, it might be a good plan
to have Jobs speak for 9 minutes and have Woz speak for a minute
in the middle about some of the technical feats he'd pulled off in
the design. (Though of course if it were actually those two, Jobs
would speak for the entire 10 minutes.)
9. Seem confident.
Between the brief time available and their lack of technical
background, many in the audience will have a hard time evaluating
what you're doing. Probably the single biggest piece of evidence,
initially, will be your own confidence in it. You have
to show you're impressed with what you've made.
And I mean show, not tell. Never say "we're passionate" or "our
product is great." People just ignore that—or worse, write you
off as bullshitters. Such messages must be implicit.
What you must not do is seem nervous and apologetic. If you've
truly made something good, you're doing investors a favor by
telling them about it. If you don't genuinely believe that, perhaps
you ought to change what your company is doing. If you don't believe
your startup has such promise that you'd be doing them a favor by
letting them invest, why are you investing your time in it?
10. Don't try to seem more than you are.
Don't worry if your company is just a few months old and doesn't
have an office yet, or your founders are technical people with no
business experience. Google was like that once, and they turned out
ok. Smart investors can see past such superficial flaws. They're
not looking for finished, smooth presentations. They're looking
for raw talent. All you need to convince them of is that you're
smart and that you're onto something good. If you try too hard to
conceal your rawness—by trying to seem corporate, or pretending
to know about stuff you don't—you may just conceal your talent.
You can afford to be candid about what you haven't figured out yet.
Don't go out of your way to bring it up (e.g. by having a slide
about what might go wrong), but don't try to pretend either that
you're further along than you are. If you're a hacker and you're
presenting to experienced investors, they're probably better at
detecting bullshit than you are at producing it.
11. Don't put too many words on slides.
When there are a lot of words on a slide, people just skip reading
it. So look at your slides and ask of each word "could I cross
this out?" This includes gratuitous clip art. Try to get your
slides under 20 words if you can.
Don't read your slides. They should be something in the background
as you face the audience and talk to them, not something you face
and read to an audience sitting behind you.
Cluttered sites don't do well in demos, especially when they're
projected onto a screen. At the very least, crank up the font size
big enough to make all the text legible. But cluttered sites are
bad anyway, so perhaps you should use this opportunity to make your
design simpler.
12. Specific numbers are good.
If you have any kind of data, however preliminary, tell the audience.
Numbers stick in people's heads. If you can claim that the median
visitor generates 12 page views, that's great.
But don't give them more than four or five numbers, and only give
them numbers specific to you. You don't need to tell them the size
of the market you're in. Who cares, really, if it's 500 million
or 5 billion a year? Talking about that is like an actor at the
beginning of his career telling his parents how much Tom Hanks
makes. Yeah, sure, but first you have to become Tom Hanks. The
important part is not whether he makes ten million a year or a
hundred, but how you get there.
13. Tell stories about users.
The biggest fear of investors looking at early stage startups is
that you've built something based on your own a priori theories of
what the world needs, but that no one will actually want. So it's
good if you can talk about problems specific users have and how you
solve them.
Greg Mcadoo said one thing Sequoia looks for is the "proxy for
demand." What are people doing now, using inadequate tools, that
shows they need what you're making?
Another sign of user need is when people pay a lot for something.
It's easy to convince investors there will be demand for
a cheaper alternative to something popular, if you preserve
the qualities that made it popular.
The best stories about user needs are about your own. A remarkable
number of famous startups grew out of some need the founders had:
Apple, Microsoft, Yahoo, Google. Experienced investors know that,
so stories of this type will get their attention. The next best
thing is to talk about the needs of people you know personally,
like your friends or siblings.
14. Make a soundbite stick in their heads.
Professional investors hear a lot of pitches. After a while they
all blur together. The first cut is simply to be one of those
they remember. And the way to ensure that is to create a descriptive
phrase about yourself that sticks in their heads.
In Hollywood, these phrases seem to be of the form "x meets y."
In the startup world, they're usually "the x of y" or "the x y."
Viaweb's was "the Microsoft Word of ecommerce."
Find one and launch it clearly (but apparently casually) in your
talk, preferably near the beginning.
It's a good exercise for you, too, to sit down and try to figure
out how to describe your startup in one compelling phrase. If you
can't, your plans may not be sufficiently focused.
October 2006
(This essay is derived from a talk at MIT.)
Till recently graduating seniors had two choices: get a job or go
to grad school. I think there will increasingly be a third option:
to start your own startup. But how common will that be?
I'm sure the default will always be to get a job, but starting a
startup could well become as popular as grad school. In the late
90s my professor friends used to complain that they couldn't get
grad students, because all the undergrads were going to work for
startups. I wouldn't be surprised if that situation returns, but
with one difference: this time they'll be starting their own
instead of going to work for other people's.
The most ambitious students will at this point be asking: Why wait
till you graduate? Why not start a startup while you're in college?
In fact, why go to college at all? Why not start a startup instead?
A year and a half ago I gave a talk
where I said that the average age of the founders of
Yahoo, Google, and Microsoft was 24, and that if grad students could
start startups, why not undergrads? I'm glad I phrased that as a
question, because now I can pretend it wasn't merely a rhetorical
one. At the time I couldn't imagine why there should be any lower
limit for the age of startup founders. Graduation is a bureaucratic
change, not a biological one. And certainly there are undergrads
as competent technically as most grad students. So why shouldn't
undergrads be able to start startups as well as grad students?
I now realize that something does change at graduation: you lose a
huge excuse for failing. Regardless of how complex your life is,
you'll find that everyone else, including your family and friends,
will discard all the low bits and regard you as having a single
occupation at any given time. If you're in college and have a
summer job writing software, you still read as a student. Whereas
if you graduate and get a job programming, you'll be instantly
regarded by everyone as a programmer.
The problem with starting a startup while you're still in school
is that there's a built-in escape hatch. If you start a startup
in the summer between your junior and senior year, it reads to
everyone as a summer job.
So if it goes nowhere, big deal; you return to school in the
fall with all the other seniors; no one regards you as a failure,
because your occupation is student, and you didn't fail at that.
Whereas if you start a startup just one year later, after you
graduate, as long as you're not accepted to grad school in the fall
the startup reads to everyone as your occupation. You're
now a startup founder, so you have to do well at that.
For nearly everyone, the opinion of one's peers is the most powerful
motivator of all—more powerful even than the nominal goal of most
startup founders, getting rich.
[1]
About a month into each funding
cycle we have an event called Prototype Day where each startup
presents to the others what they've got so far. You might think
they wouldn't need any more motivation. They're working on their
cool new idea; they have funding for the immediate future; and
they're playing a game with only two outcomes: wealth or failure.
You'd think that would be motivation enough. And yet the prospect
of a demo pushes most of them into a
rush of activity.
Even if you start a startup explicitly to get rich, the money you
might get seems pretty theoretical most of the time. What drives
you day to day is not wanting to look bad.
You probably can't change that. Even if you could, I don't think
you'd want to; someone who really, truly doesn't care what his peers
think of him is probably a psychopath. So the best you can do is
consider this force like a wind, and set up your boat accordingly.
If you know your peers are going to push you in some direction,
choose good peers, and position yourself so they push you in a
direction you like.
Graduation changes the prevailing winds, and those make a difference.
Starting a startup is so hard
that it's a close call even for the ones that succeed. However
high a startup may be flying now, it probably has a few leaves stuck
in the landing gear from those trees it barely cleared at the end
of the runway. In such a close game, the smallest increase in the
forces against you can be enough to flick you over the edge into
failure.
When we first started Y Combinator
we encouraged people to start
startups while they were still in college. That's partly because
Y Combinator began as a kind of summer program. We've kept the
program shape—all of us having dinner together once a week turns
out to be a good idea—but we've decided now
that the party line should be to tell people to wait till they
graduate.
Does that mean you can't start a startup in college? Not at all.
Sam Altman, the co-founder of Loopt,
had just finished his sophomore year when we funded them, and Loopt
is probably the most promising of all the startups we've funded so
far. But Sam Altman is a very unusual guy. Within about three
minutes of meeting him, I remember thinking "Ah, so this is what
Bill Gates must have been like when he was 19."
If it can work to start a startup during college, why do
we tell people not to? For the same reason that the probably
apocryphal violinist, whenever he was asked to judge someone's
playing, would always say they didn't have enough talent to make
it as a pro. Succeeding as a musician takes determination as well
as talent, so this answer works out to be the right advice for
everyone. The ones who are uncertain believe it and give up, and
the ones who are sufficiently determined think "screw that, I'll
succeed anyway."
So our official policy now is only to fund undergrads we can't talk
out of it. And frankly, if you're not certain, you should wait.
It's not as if all the opportunities to start companies are going
to be gone if you don't do it now. Maybe the window will close on
some idea you're working on, but that won't be the last idea you'll
have. For every idea that times out, new ones become feasible.
Historically the opportunities to start startups have only increased
with time.
In that case, you might ask, why not wait longer? Why not go work
for a while, or go to grad school, and then start a startup? And
indeed, that might be a good idea. If I had to pick the sweet spot
for startup founders, based on who we're most excited to see
applications from, I'd say it's probably the mid-twenties. Why?
What advantages does someone in their mid-twenties have over someone
who's 21? And why isn't it older? What can 25 year olds do that
32 year olds can't? Those turn out to be questions worth examining.
Plus
If you start a startup soon after college, you'll be a young founder
by present standards, so you should know what the relative advantages
of young founders are. They're not what you might think. As a
young founder your strengths are: stamina, poverty, rootlessness,
colleagues, and ignorance.
The importance of stamina shouldn't be surprising. If you've heard
anything about startups you've probably heard about the long hours.
As far as I can tell these are universal. I can't think of any
successful startups whose founders worked 9 to 5. And it's
particularly necessary for younger founders to work long hours
because they're probably not as efficient as they'll be later.
Your second advantage, poverty, might not sound like an advantage,
but it is a huge one. Poverty implies you can live cheaply,
and this is critically important for startups. Nearly every startup
that fails, fails by running out of money. It's a little misleading
to put it this way, because there's usually some other underlying
cause. But regardless of the source of your problems, a low burn
rate gives you more opportunity to recover from them. And since
most startups make all kinds of mistakes at first, room to recover
from mistakes is a valuable thing to have.
Most startups end up doing something different than they planned.
The way the successful ones find something that works is by trying
things that don't. So the worst thing you can do in a startup is
to have a rigid, pre-ordained plan and then start spending a lot
of money to implement it. Better to operate cheaply and give your
ideas time to evolve.
Recent grads can live on practically nothing, and this gives you
an edge over older founders, because the main cost in software
startups is people. The guys with kids and mortgages are at a
real disadvantage. This is one reason I'd bet on the 25 year old
over the 32 year old. The 32 year old probably is a better programmer,
but probably also has a much more expensive life. Whereas a 25
year old has some work experience (more on that later) but can live
as cheaply as an undergrad.
Robert Morris and I were 29 and 30 respectively when we started
Viaweb, but fortunately we still lived like 23 year olds. We both had
roughly zero assets. I would have loved to have a mortgage,
since that would have meant I had a house. But in retrospect
having nothing turned out to be convenient. I wasn't tied down and
I was used to living cheaply.
Even more important than living cheaply, though, is thinking cheaply.
One reason the Apple II was so popular was that it was cheap. The
computer itself was cheap, and it used cheap, off-the-shelf peripherals
like a cassette tape recorder for data storage and a TV as a monitor.
And you know why? Because Woz designed this computer for himself,
and he couldn't afford anything more.
We benefitted from the same phenomenon. Our prices were
daringly low for the time. The top level of service was
$300 a month, which was an order of magnitude below the norm. In
retrospect this was a smart move, but we didn't do it because we
were smart. $300 a month seemed like a lot of money to us. Like
Apple, we created something inexpensive, and therefore popular,
simply because we were poor.
A lot of startups have that form: someone comes along and makes
something for a tenth or a hundredth of what it used to cost, and
the existing players can't follow because they don't even want to
think about a world in which that's possible. Traditional long
distance carriers, for example, didn't even want to think about
VoIP. (It was coming, all the same.) Being poor helps in this
game, because your own personal bias points in the same direction
technology evolves in.
The advantages of rootlessness are similar to those of poverty.
When you're young you're more mobile—not just because you don't
have a house or much stuff, but also because you're less likely to
have serious relationships. This turns out to be important, because
a lot of startups involve someone moving.
The founders of Kiko, for example, are now en route to the Bay Area
to start their next startup. It's a better place for what they
want to do. And it was easy for them to decide to go, because
neither as far as I know has a serious girlfriend, and everything
they own will fit in one car—or more precisely, will either fit
in one car or is crappy enough that they don't mind leaving it
behind.
They at least were in Boston. What if they'd been in Nebraska,
like Evan Williams was at their age? Someone wrote recently that
the drawback of Y Combinator was that you had to move to participate.
It couldn't be any other way. The kind of conversations we have
with founders, we have to have in person. We fund a dozen startups
at a time, and we can't be in a dozen places at once. But even if
we could somehow magically save people from moving, we wouldn't.
We wouldn't be doing founders a favor by letting them stay in
Nebraska. Places that aren't
startup hubs are toxic to startups.
You can tell that from indirect evidence. You can tell how hard
it must be to start a startup in Houston or Chicago or Miami from
the microscopically small number, per capita, that succeed
there. I don't know exactly what's suppressing all the startups in these
towns—probably a hundred subtle little things—but something
must be.
[2]
Maybe this will change. Maybe the increasing cheapness of startups
will mean they'll be able to survive anywhere, instead of only in
the most hospitable environments. Maybe 37signals is the pattern
for the future. But maybe not. Historically there have always
been certain towns that were centers for certain industries, and
if you weren't in one of them you were at a disadvantage. So my
guess is that 37signals is an anomaly. We're looking at a pattern
much older than "Web 2.0" here.
Perhaps the reason more startups per capita happen in the Bay Area
than Miami is simply that there are more founder-type people there.
Successful startups are almost never started by one person. Usually
they begin with a conversation in which someone mentions that
something would be a good idea for a company, and his friend says,
"Yeah, that is a good idea, let's try it." If you're missing that
second person who says "let's try it," the startup never happens.
And that is another area where undergrads have an edge. They're
surrounded by people willing to say that. At a good college you're
concentrated together with a lot of other ambitious and technically
minded people—probably more concentrated than you'll ever be
again. If your nucleus spits out a neutron, there's a good chance
it will hit another nucleus.
The number one question people ask us at Y Combinator is: Where can
I find a co-founder? That's the biggest problem for someone starting
a startup at 30. When they were in school they knew a lot of good
co-founders, but by 30 they've either lost touch with them or these
people are tied down by jobs they don't want to leave.
Viaweb was an anomaly in this respect too. Though we were comparatively
old, we weren't tied down by impressive jobs. I was trying to be
an artist, which is not very constraining, and Robert, though 29,
was still in grad school due to a little interruption in his academic
career back in 1988. So arguably the Worm made Viaweb possible.
Otherwise Robert would have been a junior professor at that age,
and he wouldn't have had time to work on crazy speculative projects
with me.
Most of the questions people ask Y Combinator we have some kind of
answer for, but not the co-founder question. There is no good
answer. Co-founders really should be people you already know. And
by far the best place to meet them is school. You have a large
sample of smart people; you get to compare how they all perform on
identical tasks; and everyone's life is pretty fluid. A lot of
startups grow out of schools for this reason. Google, Yahoo, and
Microsoft, among others, were all founded by people who met in
school. (In Microsoft's case, it was high school.)
Many students feel they should wait and get a little more experience
before they start a company. All other things being equal, they
should. But all other things are not quite as equal as they look.
Most students don't realize how rich they are in the scarcest
ingredient in startups, co-founders. If you wait too long, you may
find that your friends are now involved in some project they don't
want to abandon. The better they are, the more likely this is to
happen.
One way to mitigate this problem might be to actively plan your
startup while you're getting those n years of experience. Sure,
go off and get jobs or go to grad school or whatever, but get
together regularly to scheme, so the idea of starting a startup
stays alive in everyone's brain. I don't know if this works, but
it can't hurt to try.
It would be helpful just to realize what an advantage you have as
students. Some of your classmates are probably going to be successful
startup founders; at a great technical university, that is a near
certainty. So which ones? If I were you I'd look for the people
who are not just smart, but incurable
builders.
Look
for the people who keep starting projects, and finish at least some
of them. That's what we look for. Above all else, above academic
credentials and even the idea you apply with, we look for people
who build things.
The other place co-founders meet is at work. Fewer do than at
school, but there are things you can do to improve the odds. The
most important, obviously, is to work somewhere that has a lot of
smart, young people. Another is to work for a company located in
a startup hub. It will be easier to talk a co-worker into quitting
with you in a place where startups are happening all around you.
You might also want to look at the employment agreement you sign
when you get hired. Most will say that any ideas you think of while
you're employed by the company belong to them. In practice it's
hard for anyone to prove what ideas you had when, so the line gets
drawn at code. If you're going to start a startup, don't write any
of the code while you're still employed. Or at least discard any
code you wrote while still employed and start over. It's not so
much that your employer will find out and sue you. It won't come
to that; investors or acquirers or (if you're so lucky) underwriters
will nail you first. Between t = 0 and when you buy that yacht,
someone is going to ask if any of your code legally belongs
to anyone else, and you need to be able to say no.
[3]
The most overreaching employee agreement I've seen so far is Amazon's.
In addition to the usual clauses about owning your ideas, you also
can't be a founder of a startup that has another founder who worked
at Amazon—even if you didn't know them or even work there at the
same time. I suspect they'd have a hard time enforcing this, but
it's a bad sign they even try. There are plenty of other places
to work; you may as well choose one that keeps more of your options
open.
Speaking of cool places to work, there is of course Google. But I
notice something slightly frightening about Google: zero startups
come out of there. In that respect it's a black hole. People seem
to like working at Google too much to leave. So if you hope to start
a startup one day, the evidence so far suggests you shouldn't work
there.
I realize this seems odd advice. If they make your life so good
that you don't want to leave, why not work there? Because, in
effect, you're probably getting a local maximum. You need a certain
activation energy to start a startup. So an employer who's fairly
pleasant to work for can lull you into staying indefinitely, even
if it would be a net win for you to leave.
[4]
The best place to work, if you want to start a startup, is probably
a startup. In addition to being the right sort of experience, one
way or another it will be over quickly. You'll either end up rich,
in which case problem solved, or the startup will get bought, in
which case it it will start to suck to work there and it will be
easy to leave, or most likely, the thing will blow up and you'll
be free again.
Your final advantage, ignorance, may not sound very useful. I
deliberately used a controversial word for it; you might equally
call it innocence. But it seems to be a powerful force. My Y
Combinator co-founder Jessica Livingston is just about to publish
a book of interviews
with startup founders, and I noticed a remarkable pattern in them.
One after another said that if they'd known how hard it would be,
they would have been too intimidated to start.
Ignorance can be useful when it's a counterweight to other forms
of stupidity. It's useful in starting startups because you're
capable of more than you realize. Starting startups is harder than
you expect, but you're also capable of more than you expect, so
they balance out.
Most people look at a company like Apple and think, how could I
ever make such a thing? Apple is an institution, and I'm just a
person. But every institution was at one point just a handful of
people in a room deciding to start something. Institutions are
made up, and made up by people no different from you.
I'm not saying everyone could start a startup. I'm sure most people
couldn't; I don't know much about the population at large. When
you get to groups I know well, like hackers, I can say more precisely.
At the top schools, I'd guess as many as a quarter of the CS majors
could make it as startup founders if they wanted.
That "if they wanted" is an important qualification—so important
that it's almost cheating to append it like that—because once you
get over a certain threshold of intelligence, which most CS majors
at top schools are past, the deciding factor in whether you succeed
as a founder is how much you want to. You don't have to be that
smart. If you're not a genius, just start a startup in some unsexy
field where you'll have less competition, like software for human
resources departments. I picked that example at random, but I feel
safe in predicting that whatever they have now, it wouldn't take
genius to do better. There are a lot of people out there working
on boring stuff who are desperately in need of better software, so
however short you think you fall of Larry and Sergey, you can ratchet
down the coolness of the idea far enough to compensate.
As well as preventing you from being intimidated, ignorance can
sometimes help you discover new ideas. Steve Wozniak
put this very strongly:
All the best things that I did at Apple came from (a) not having money and (b) not having done it before, ever. Every single thing that we came out with that was really great, I'd never once done that thing in my life.When you know nothing, you have to reinvent stuff for yourself, and if you're smart your reinventions may be better than what preceded them. This is especially true in fields where the rules change. All our ideas about software were developed in a time when processors were slow, and memories and disks were tiny. Who knows what obsolete assumptions are embedded in the conventional wisdom? And the way these assumptions are going to get fixed is not by explicitly deallocating them, but by something more akin to garbage collection. Someone ignorant but smart will come along and reinvent everything, and in the process simply fail to reproduce certain existing ideas.
Comment on this essay.
October 2006
In the Q & A period after a recent talk, someone asked what made
startups fail. After standing there gaping for a few seconds I
realized this was kind of a trick question. It's equivalent to
asking how to make a startup succeed — if you avoid every cause of
failure, you succeed — and that's too big a question to answer on
the fly.
Afterwards I realized it could be helpful to look at the problem
from this direction. If you have a list of all the things you
shouldn't do, you can turn that into a recipe for succeeding just
by negating. And this form of list may be more useful in practice.
It's easier to catch yourself doing something you shouldn't than
always to remember to do something you should.
[1]
In a sense there's just one mistake that kills startups: not making
something users want. If you make something users want, you'll
probably be fine, whatever else you do or don't do. And if you
don't make something users want, then you're dead, whatever else
you do or don't do. So really this is a list of 18 things that
cause startups not to make something users want. Nearly all failure
funnels through that.
1. Single Founder
Have you ever noticed how few successful startups were founded by
just one person? Even companies you think of as having one founder,
like Oracle, usually turn out to have more. It seems unlikely this
is a coincidence.
What's wrong with having one founder? To start with, it's a vote
of no confidence. It probably means the founder couldn't talk any
of his friends into starting the company with him. That's pretty
alarming, because his friends are the ones who know him best.
But even if the founder's friends were all wrong and the company
is a good bet, he's still at a disadvantage. Starting a startup
is too hard for one person. Even if you could do all the work
yourself, you need colleagues to brainstorm with, to talk you out
of stupid decisions, and to cheer you up when things go wrong.
The last one might be the most important. The low points in a
startup are so low that few could bear them alone. When you have
multiple founders, esprit de corps binds them together in a way
that seems to violate conservation laws. Each thinks "I can't let
my friends down." This is one of the most powerful forces in human
nature, and it's missing when there's just one founder.
2. Bad Location
Startups prosper in some places and not others. Silicon Valley
dominates, then Boston, then Seattle, Austin, Denver, and New York. After
that there's not much. Even in New York the number of startups per
capita is probably a 20th of what it is in Silicon Valley. In towns
like Houston and Chicago and Detroit it's too small to measure.
Why is the falloff so sharp? Probably for the same reason it is
in other industries. What's the sixth largest fashion center in
the US? The sixth largest center for oil, or finance, or publishing?
Whatever they are they're probably so far from the top that it would
be misleading even to call them centers.
It's an interesting question why cities
become startup hubs, but
the reason startups prosper in them is probably the same as it is
for any industry: that's where the experts are. Standards are
higher; people are more sympathetic to what you're doing; the kind
of people you want to hire want to live there; supporting industries
are there; the people you run into in chance meetings are in the
same business. Who knows exactly how these factors combine to boost
startups in Silicon Valley and squish them in Detroit, but it's
clear they do from the number of startups per capita in each.
3. Marginal Niche
Most of the groups that apply to Y Combinator suffer from a common
problem: choosing a small, obscure niche in the hope of avoiding
competition.
If you watch little kids playing sports, you notice that below a
certain age they're afraid of the ball. When the ball comes near
them their instinct is to avoid it. I didn't make a lot of catches
as an eight year old outfielder, because whenever a fly ball came
my way, I used to close my eyes and hold my glove up more for
protection than in the hope of catching it.
Choosing a marginal project is the startup equivalent of my eight
year old strategy for dealing with fly balls. If you make anything
good, you're going to have competitors, so you may as well face
that. You can only avoid competition by avoiding good ideas.
I think this shrinking from big problems is mostly unconscious.
It's not that people think of grand ideas but decide to pursue
smaller ones because they seem safer. Your unconscious won't even
let you think of grand ideas. So the solution may be to think about
ideas without involving yourself. What would be a great idea for
someone else to do as a startup?
4. Derivative Idea
Many of the applications we get are imitations of some existing
company. That's one source of ideas, but not the best. If you
look at the origins of successful startups, few were started in
imitation of some other startup. Where did they get their ideas?
Usually from some specific, unsolved problem the founders identified.
Our startup made software for making online stores. When we started
it, there wasn't any; the few sites you could order from were
hand-made at great expense by web consultants. We knew that if
online shopping ever took off, these sites would have to be generated
by software, so we wrote some. Pretty straightforward.
It seems like the best problems to solve are ones that affect you
personally. Apple happened because Steve Wozniak wanted a computer,
Google because Larry and Sergey couldn't find stuff online, Hotmail
because Sabeer Bhatia and Jack Smith couldn't exchange email at
work.
So instead of copying the Facebook, with some variation that the
Facebook rightly ignored, look for ideas from the other direction.
Instead of starting from companies and working back to the problems
they solved, look for problems and imagine the company that might
solve them.
[2]
What do people complain about? What do you wish there was?
5. Obstinacy
In some fields the way to succeed is to have a vision of what you
want to achieve, and to hold true to it no matter what setbacks you
encounter. Starting startups is not one of them. The stick-to-your-vision
approach works for something like winning an Olympic gold medal,
where the problem is well-defined. Startups are more like science,
where you need to follow the trail wherever it leads.
So don't get too attached to your original plan, because it's
probably wrong. Most successful startups end up doing something
different than they originally intended — often so different that
it doesn't even seem like the same company. You have to be prepared
to see the better idea when it arrives. And the hardest part of
that is often discarding your old idea.
But openness to new ideas has to be tuned just right. Switching
to a new idea every week will be equally fatal. Is there some kind
of external test you can use? One is to ask whether the ideas
represent some kind of progression. If in each new idea you're
able to re-use most of what you built for the previous ones, then
you're probably in a process that converges. Whereas if you keep
restarting from scratch, that's a bad sign.
Fortunately there's someone you can ask for advice: your users. If
you're thinking about turning in some new direction and your users
seem excited about it, it's probably a good bet.
6. Hiring Bad Programmers
I forgot to include this in the early versions of the list,
because nearly all the founders I know are programmers. This is
not a serious problem for them. They might accidentally hire someone
bad, but it's not going to kill the company. In a pinch they can
do whatever's required themselves.
But when I think about what killed most of the startups in the
e-commerce business back in the 90s, it was bad programmers. A lot
of those companies were started by business guys who thought the
way startups worked was that you had some clever idea and then hired
programmers to implement it. That's actually much harder than it
sounds — almost impossibly hard in fact — because business guys
can't tell which are the good programmers. They don't even get a
shot at the best ones, because no one really good wants a job
implementing the vision of a business guy.
In practice what happens is that the business guys choose people
they think are good programmers (it says here on his resume that
he's a Microsoft Certified Developer) but who aren't. Then they're
mystified to find that their startup lumbers along like a World War
II bomber while their competitors scream past like jet fighters.
This kind of startup is in the same position as a big company,
but without the advantages.
So how do you pick good programmers if you're not a programmer? I
don't think there's an answer. I was about to say you'd have to
find a good programmer to help you hire people. But if you can't
recognize good programmers, how would you even do that?
7. Choosing the Wrong Platform
A related problem (since it tends to be done by bad programmers)
is choosing the wrong platform. For example, I think a lot of
startups during the Bubble killed themselves by deciding to build
server-based applications on Windows. Hotmail was still running
on FreeBSD for years after Microsoft bought it, presumably because
Windows couldn't handle the load. If Hotmail's founders
had chosen to use Windows, they would have been swamped.
PayPal only just dodged this bullet. After they merged with X.com,
the new CEO wanted to switch to Windows — even after PayPal cofounder
Max Levchin showed that their software scaled only 1% as well on
Windows as Unix. Fortunately for PayPal they switched CEOs instead.
Platform is a vague word. It could mean an operating system, or a
programming language, or a "framework" built on top of a programming
language. It implies something that both supports and limits, like
the foundation of a house.
The scary thing about platforms is that there are always some that
seem to outsiders to be fine, responsible choices and yet, like
Windows in the 90s, will destroy you if you choose them. Java
applets were probably the most spectacular example. This was
supposed to be the new way of delivering applications. Presumably
it killed just about 100% of the startups who believed that.
How do you pick the right platforms? The usual way is to hire good
programmers and let them choose. But there is a trick you could
use if you're not a programmer: visit a top computer science
department and see what they use in research projects.
8. Slowness in Launching
Companies of all sizes have a hard time getting software done. It's
intrinsic to the medium; software is always 85% done. It takes an
effort of will to push through this and get something released to
users.
[3]
Startups make all kinds of excuses for delaying their launch. Most
are equivalent to the ones people use for procrastinating in everyday
life. There's something that needs to happen first. Maybe. But
if the software were 100% finished and ready to launch at the push
of a button, would they still be waiting?
One reason to launch quickly is that it forces you to actually
finish some quantum of work. Nothing is truly finished till it's
released; you can see that from the rush of work that's always
involved in releasing anything, no matter how finished you thought
it was. The other reason you need to launch is that it's only by
bouncing your idea off users that you fully understand it.
Several distinct problems manifest themselves as delays in launching:
working too slowly; not truly understanding the problem; fear of
having to deal with users; fear of being judged; working on too
many different things; excessive perfectionism. Fortunately you
can combat all of them by the simple expedient of forcing yourself
to launch something fairly quickly.
9. Launching Too Early
Launching too slowly has probably killed a hundred times more
startups than launching too fast, but it is possible to launch too
fast. The danger here is that you ruin your reputation. You launch
something, the early adopters try it out, and if it's no good they
may never come back.
So what's the minimum you need to launch? We suggest startups think
about what they plan to do, identify a core that's both (a) useful
on its own and (b) something that can be incrementally expanded
into the whole project, and then get that done as soon as possible.
This is the same approach I (and many other programmers) use for
writing software. Think about the overall goal, then start by
writing the smallest subset of it that does anything useful. If
it's a subset, you'll have to write it anyway, so in the worst case
you won't be wasting your time. But more likely you'll find that
implementing a working subset is both good for morale and helps you
see more clearly what the rest should do.
The early adopters you need to impress are fairly tolerant. They
don't expect a newly launched product to do everything; it just has
to do something.
10. Having No Specific User in Mind
You can't build things users like without understanding them. I
mentioned earlier that the most successful startups seem to have
begun by trying to solve a problem their founders had. Perhaps
there's a rule here: perhaps you create wealth in proportion to how
well you understand the problem you're solving, and the problems
you understand best are your own.
[4]
That's just a theory. What's not a theory is the converse: if
you're trying to solve problems you don't understand, you're hosed.
And yet a surprising number of founders seem willing to
assume that someone, they're not sure exactly who, will want what
they're building. Do the founders want it? No, they're not the
target market. Who is? Teenagers. People interested in local
events (that one is a perennial tarpit). Or "business" users. What
business users? Gas stations? Movie studios? Defense contractors?
You can of course build something for users other than yourself.
We did. But you should realize you're stepping into dangerous
territory. You're flying on instruments, in effect, so you should
(a) consciously shift gears, instead of assuming you can rely on
your intuitions as you ordinarily would, and (b) look at the
instruments.
In this case the instruments are the users. When designing for
other people you have to be empirical. You can no longer guess
what will work; you have to find users and measure their responses.
So if you're going to make something for teenagers or "business"
users or some other group that doesn't include you, you have to be
able to talk some specific ones into using what you're making. If
you can't, you're on the wrong track.
11. Raising Too Little Money
Most successful startups take funding at some point. Like having
more than one founder, it seems a good bet statistically. How much
should you take, though?
Startup funding is measured in time. Every startup that isn't
profitable (meaning nearly all of them, initially) has a certain
amount of time left before the money runs out and they have to stop.
This is sometimes referred to as runway, as in "How much runway do
you have left?" It's a good metaphor because it reminds you that
when the money runs out you're going to be airborne or dead.
Too little money means not enough to get airborne. What airborne
means depends on the situation. Usually you have to advance to a
visibly higher level: if all you have is an idea, a working prototype;
if you have a prototype, launching; if you're launched, significant
growth. It depends on investors, because until you're profitable
that's who you have to convince.
So if you take money from investors, you have to take enough to get
to the next step, whatever that is.
[5]
Fortunately you have some
control over both how much you spend and what the next step is. We
advise startups to set both low, initially: spend practically
nothing, and make your initial goal simply to build a solid prototype.
This gives you maximum flexibility.
12. Spending Too Much
It's hard to distinguish spending too much from raising too little.
If you run out of money, you could say either was the cause. The
only way to decide which to call it is by comparison with other
startups. If you raised five million and ran out of money, you
probably spent too much.
Burning through too much money is not as common as it used to be.
Founders seem to have learned that lesson. Plus it keeps getting
cheaper to start a startup. So as of this writing few startups
spend too much. None of the ones we've funded have. (And not just
because we make small investments; many have gone on to raise further
rounds.)
The classic way to burn through cash is by hiring a lot of people.
This bites you twice: in addition to increasing your costs, it slows
you down—so money that's getting consumed faster has to last
longer. Most hackers understand why that happens; Fred Brooks
explained it in The Mythical Man-Month.
We have three general suggestions about hiring: (a) don't do it if
you can avoid it, (b) pay people with equity rather than salary,
not just to save money, but because you want the kind of people who
are committed enough to prefer that, and (c) only hire people who
are either going to write code or go out and get users, because
those are the only things you need at first.
13. Raising Too Much Money
It's obvious how too little money could kill you, but is there such
a thing as having too much?
Yes and no. The problem is not so much the money itself as what
comes with it. As one VC who spoke at Y Combinator said, "Once you
take several million dollars of my money, the clock is ticking."
If VCs fund you, they're not going to let you just put the money
in the bank and keep operating as two guys living on ramen. They
want that money to go to work.
[6]
At the very least you'll move
into proper office space and hire more people. That will change
the atmosphere, and not entirely for the better. Now most of your
people will be employees rather than founders. They won't be as
committed; they'll need to be told what to do; they'll start to
engage in office politics.
When you raise a lot of money, your company moves to the suburbs
and has kids.
Perhaps more dangerously, once you take a lot of money it gets
harder to change direction. Suppose your initial plan was to sell
something to companies. After taking VC money you hire a sales
force to do that. What happens now if you realize you should be
making this for consumers instead of businesses? That's a completely
different kind of selling. What happens, in practice, is that you
don't realize that. The more people you have, the more you stay
pointed in the same direction.
Another drawback of large investments is the time they take. The
time required to raise money grows with the amount.
[7]
When the
amount rises into the millions, investors get very cautious. VCs
never quite say yes or no; they just engage you in an apparently
endless conversation. Raising VC scale investments is thus a huge
time sink — more work, probably, than the startup itself. And you
don't want to be spending all your time talking to investors while
your competitors are spending theirs building things.
We advise founders who go on to seek VC money to take the first
reasonable deal they get. If you get an offer from a reputable
firm at a reasonable valuation with no unusually onerous terms,
just take it and get on with building the company.
[8]
Who cares
if you could get a 30% better deal elsewhere? Economically, startups
are an all-or-nothing game. Bargain-hunting among investors is a
waste of time.
14. Poor Investor Management
As a founder, you have to manage your investors. You shouldn't
ignore them, because they may have useful insights. But neither
should you let them run the company. That's supposed to be your
job. If investors had sufficient vision to run the companies
they fund, why didn't they start them?
Pissing off investors by ignoring them is probably less dangerous
than caving in to them. In our startup, we erred on the ignoring
side. A lot of our energy got drained
away in disputes with investors instead of going into the product.
But this was less costly than giving in, which would probably have
destroyed the company. If the founders know what they're doing,
it's better to have half their attention focused on the product
than the full attention of investors who don't.
How hard you have to work on managing investors usually depends on
how much money you've taken. When you raise VC-scale money, the
investors get a great deal of control. If they have a board majority,
they're literally your bosses. In the more common case, where
founders and investors are equally represented and the deciding
vote is cast by neutral outside directors, all the investors have
to do is convince the outside directors and they control the company.
If things go well, this shouldn't matter. So long as you seem to
be advancing rapidly, most investors will leave you alone. But
things don't always go smoothly in startups. Investors have made
trouble even for the most successful companies. One of the most
famous examples is Apple, whose board made a nearly fatal blunder
in firing Steve Jobs. Apparently even Google got a lot of grief
from their investors early on.
15. Sacrificing Users to (Supposed) Profit
When I said at the beginning that if you make something users want,
you'll be fine, you may have noticed I didn't mention anything about
having the right business model. That's not because making money
is unimportant. I'm not suggesting that founders start companies
with no chance of making money in the hope of unloading them before
they tank. The reason we tell founders not to worry about the
business model initially is that making something people want is
so much harder.
I don't know why it's so hard to make something people want. It
seems like it should be straightforward. But you can tell it must
be hard by how few startups do it.
Because making something people want is so much harder than making
money from it, you should leave business models for later, just as
you'd leave some trivial but messy feature for version 2. In version
1, solve the core problem. And the core problem in a startup is
how to create wealth
(= how much people want something x the number
who want it), not how to convert that wealth into money.
The companies that win are the ones that put users first. Google,
for example. They made search work, then worried about how to make
money from it. And yet some startup founders still think it's
irresponsible not to focus on the business model from the beginning.
They're often encouraged in this by investors whose experience comes
from less malleable industries.
It is irresponsible not to think about business models. It's
just ten times more irresponsible not to think about the product.
16. Not Wanting to Get Your Hands Dirty
Nearly all programmers would rather spend their time writing code
and have someone else handle the messy business of extracting money
from it. And not just the lazy ones. Larry and Sergey apparently
felt this way too at first. After developing their new search
algorithm, the first thing they tried was to get some other company
to buy it.
Start a company? Yech. Most hackers would rather just have ideas.
But as Larry and Sergey found, there's not much of a market for
ideas. No one trusts an idea till you embody it in a product and
use that to grow a user base. Then they'll pay big time.
Maybe this will change, but I doubt it will change much. There's
nothing like users for convincing acquirers. It's not just that
the risk is decreased. The acquirers are human, and they have a
hard time paying a bunch of young guys millions of dollars just for
being clever. When the idea is embodied in a company with a lot
of users, they can tell themselves they're buying the users rather
than the cleverness, and this is easier for them to swallow.
[9]
If you're going to attract users, you'll probably have to get up
from your computer and go find some. It's unpleasant work, but if
you can make yourself do it you have a much greater chance of
succeeding. In the first batch of startups we funded, in the summer
of 2005, most of the founders spent all their time building their
applications. But there was one who was away half the time talking
to executives at cell phone companies, trying to arrange deals.
Can you imagine anything more painful for a hacker?
[10]
But it
paid off, because this startup seems the most successful of that
group by an order of magnitude.
If you want to start a startup, you have to face the fact that you
can't just hack. At least one hacker will have to spend some of
the time doing business stuff.
17. Fights Between Founders
Fights between founders are surprisingly common. About 20% of the
startups we've funded have had a founder leave. It happens so often
that we've reversed our attitude to vesting. We still don't require
it, but now we advise founders to vest so there will be an orderly
way for people to quit.
A founder leaving doesn't necessarily kill a startup, though. Plenty
of successful startups have had that happen.
[11]
Fortunately it's
usually the least committed founder who leaves. If there are three
founders and one who was lukewarm leaves, big deal. If you have
two and one leaves, or a guy with critical technical skills leaves,
that's more of a problem. But even that is survivable. Blogger
got down to one person, and they bounced back.
Most of the disputes I've seen between founders could have been
avoided if they'd been more careful about who they started a company
with. Most disputes are not due to the situation but the people.
Which means they're inevitable. And most founders who've been
burned by such disputes probably had misgivings, which they suppressed,
when they started the company. Don't suppress misgivings. It's
much easier to fix problems before the company is started than
after. So don't include your housemate in your startup because
he'd feel left out otherwise. Don't start a company with someone
you dislike because they have some skill you need and you worry you
won't find anyone else. The people are the most important ingredient
in a startup, so don't compromise there.
18. A Half-Hearted Effort
The failed startups you hear most about are the spectacular
flameouts. Those are actually the elite of failures. The most
common type is not the one that makes spectacular mistakes, but the
one that doesn't do much of anything — the one we never even hear
about, because it was some project a couple guys started on the
side while working on their day jobs, but which never got anywhere
and was gradually abandoned.
Statistically, if you want to avoid failure, it would seem like the
most important thing is to quit your day job. Most founders of
failed startups don't quit their day jobs, and most founders of
successful ones do. If startup failure were a disease, the CDC
would be issuing bulletins warning people to avoid day jobs.
Does that mean you should quit your day job? Not necessarily. I'm
guessing here, but I'd guess that many of these would-be founders
may not have the kind of determination it takes to start a company,
and that in the back of their minds, they know it. The reason they
don't invest more time in their startup is that they know it's a
bad investment.
[12]
I'd also guess there's some band of people who could have succeeded
if they'd taken the leap and done it full-time, but didn't. I have
no idea how wide this band is, but if the winner/borderline/hopeless
progression has the sort of distribution you'd expect, the number
of people who could have made it, if they'd quit their day job, is
probably an order of magnitude larger than the number who do make
it.
[13]
If that's true, most startups that could succeed fail because the
founders don't devote their whole efforts to them. That certainly
accords with what I see out in the world. Most startups fail because
they don't make something people want, and the reason most don't
is that they don't try hard enough.
In other words, starting startups is just like everything else.
The biggest mistake you can make is not to try hard enough. To the
extent there's a secret to success, it's not to be in denial about
that.
Notes
[1]
This is not a complete list of the causes of failure,
just those you can control. There are also several you can't,
notably ineptitude and bad luck.
[2]
Ironically, one variant of the Facebook that might work is a
facebook exclusively for college students.
[3]
Steve Jobs tried to motivate people by saying "Real artists
ship." This is a fine sentence, but unfortunately not true. Many
famous works of art are unfinished. It's true in fields that have
hard deadlines, like architecture and filmmaking, but even there
people tend to be tweaking stuff till it's yanked out of their
hands.
[4]
There's probably also a second factor: startup founders tend
to be at the leading edge of technology, so problems they face are
probably especially valuable.
[5]
You should take more than you think you'll need, maybe 50% to
100% more, because software takes longer to write and deals longer
to close than you expect.
[6]
Since people sometimes call us VCs, I should add that we're
not. VCs invest large amounts of other people's money. We invest
small amounts of our own, like angel investors.
[7]
Not linearly of course, or it would take forever to raise five
million dollars. In practice it just feels like it takes forever.
Though if you include the cases where VCs don't invest, it would
literally take forever in the median case. And maybe we should,
because the danger of chasing large investments is not just that
they take a long time. That's the best case. The real danger
is that you'll expend a lot of time and get nothing.
[8]
Some VCs will offer you an artificially low valuation to see
if you have the balls to ask for more. It's lame that VCs play
such games, but some do. If you're dealing with one of those you
should push back on the valuation a bit.
[9]
Suppose YouTube's founders had gone to Google in 2005 and told
them "Google Video is badly designed. Give us $10 million and we'll
tell you all the mistakes you made." They would have gotten
the royal raspberry. Eighteen months later Google paid $1.6 billion
for the same lesson, partly because they could then tell themselves
that they were buying a phenomenon, or a community, or some vague
thing like that.
I don't mean to be hard on Google. They did better than their
competitors, who may have now missed the video boat entirely.
[10]
Yes, actually: dealing with the government. But phone companies
are up there.
[11]
Many more than most people realize, because companies don't advertise
this. Did you know Apple originally had three founders?
[12]
I'm not dissing these people. I don't have the determination
myself. I've twice come close to starting startups since Viaweb,
and both times I bailed because I realized that without the spur
of poverty I just wasn't willing to endure the stress of a startup.
[13]
So how do you know whether you're in the category of people
who should quit their day job, or the presumably larger one who
shouldn't? I got to the point of saying that this was hard to judge
for yourself and that you should seek outside advice, before realizing
that that's what we do. We think of ourselves as investors, but
viewed from the other direction Y Combinator is a service for
advising people whether or not to quit their day job. We could be
mistaken, and no doubt often are, but we do at least bet money on
our conclusions.
Thanks to Sam Altman, Jessica Livingston, Greg McAdoo, and Robert Morris
for reading drafts of this.

March 2007
(This essay is derived from talks at the 2007
Startup School and the Berkeley CSUA.)
We've now been doing Y Combinator long enough to have some data
about success rates. Our first batch, in the summer of 2005, had
eight startups in it. Of those eight, it now looks as if at least
four succeeded. Three have been acquired:
Reddit was a merger of
two, Reddit and Infogami, and a third was acquired that we can't
talk about yet. Another from that batch was
Loopt, which is doing
so well they could probably be acquired in about ten minutes if
they wanted to.
So about half the founders from that first summer, less than two
years ago, are now rich, at least by their standards. (One thing
you learn when you get rich is that there are many degrees of it.)
I'm not ready to predict our success rate will stay as high as 50%.
That first batch could have been an anomaly. But we should be able
to do better than the oft-quoted (and probably made
up) standard figure of 10%. I'd feel safe aiming at 25%.
Even the founders who fail don't seem to have such a bad time. Of
those first eight startups, three are now probably dead. In two
cases the founders just went on to do other things at the end of
the summer. I don't think they were traumatized by the experience.
The closest to a traumatic failure was Kiko, whose founders kept
working on their startup for a whole year before being squashed by
Google Calendar. But they ended up happy. They sold their software
on eBay for a quarter of a million dollars. After they paid back
their angel investors, they had about a year's salary each.
[1]
Then they immediately went on to start a new and much more exciting
startup, Justin.TV.
So here is an even more striking statistic: 0% of that first batch
had a terrible experience. They had ups and downs, like every
startup, but I don't think any would have traded it for a job in a
cubicle. And that statistic is probably not an anomaly. Whatever
our long-term success rate ends up being, I think the rate of people
who wish they'd gotten a regular job will stay close to 0%.
The big mystery to me is: why don't more people start startups? If
nearly everyone who does it prefers it to a regular job, and a
significant percentage get rich, why doesn't everyone want to do
this? A lot of people think we get thousands of applications for
each funding cycle. In fact we usually only get several hundred.
Why don't more people apply? And while it must seem to anyone
watching this world that startups are popping up like crazy, the
number is small compared to the number of people with the necessary
skills. The great majority of programmers still go straight from
college to cubicle, and stay there.
It seems like people are not acting in their own interest. What's
going on? Well, I can answer that. Because of Y Combinator's
position at the very start of the venture funding process, we're
probably the world's leading experts on the psychology of people
who aren't sure if they want to start a company.
There's nothing wrong with being unsure. If you're a hacker thinking
about starting a startup and hesitating before taking the leap,
you're part of a grand tradition. Larry and Sergey seem to have
felt the same before they started Google, and so did Jerry and Filo
before they started Yahoo. In fact, I'd guess the most successful
startups are the ones started by uncertain hackers rather than
gung-ho business guys.
We have some evidence to support this. Several of the most successful
startups we've funded told us later that they only decided to apply
at the last moment. Some decided only hours before the deadline.
The way to deal with uncertainty is to analyze it into components.
Most people who are reluctant to do something have about eight
different reasons mixed together in their heads, and don't know
themselves which are biggest. Some will be justified and some
bogus, but unless you know the relative proportion of each, you
don't know whether your overall uncertainty is mostly justified or
mostly bogus.
So I'm going to list all the components of people's reluctance to
start startups, and explain which are real. Then would-be founders
can use this as a checklist to examine their own feelings.
I admit my goal is to increase your self-confidence. But there are
two things different here from the usual confidence-building exercise.
One is that I'm motivated to be honest. Most people in the
confidence-building business have already achieved their goal when
you buy the book or pay to attend the seminar where they tell you
how great you are. Whereas if I encourage people to start startups
who shouldn't, I make my own life worse. If I encourage too many
people to apply to Y Combinator, it just means more work for me,
because I have to read all the applications.
The other thing that's going to be different is my approach. Instead
of being positive, I'm going to be negative. Instead of telling
you "come on, you can do it" I'm going to consider all the reasons
you aren't doing it, and show why most (but not all) should be
ignored. We'll start with the one everyone's born with.
1. Too young
A lot of people think they're too young to start a startup. Many
are right. The median age worldwide is about 27, so probably a
third of the population can truthfully say they're too young.
What's too young? One of our goals with Y Combinator was to discover
the lower bound on the age of startup founders. It always seemed
to us that investors were too conservative here—that they wanted
to fund professors, when really they should be funding grad students
or even undergrads.
The main thing we've discovered from pushing the edge of this
envelope is not where the edge is, but how fuzzy it is. The outer
limit may be as low as 16. We don't look beyond 18 because people
younger than that can't legally enter into contracts. But the most
successful founder we've funded so far, Sam Altman, was 19 at the
time.
Sam Altman, however, is an outlying data point. When he was 19,
he seemed like he had a 40 year old inside him. There are other
19 year olds who are 12 inside.
There's a reason we have a distinct word "adult" for people over a
certain age. There is a threshold you cross. It's conventionally
fixed at 21, but different people cross it at greatly varying ages.
You're old enough to start a startup if you've crossed this threshold,
whatever your age.
How do you tell? There are a couple tests adults use. I realized
these tests existed after meeting Sam Altman, actually. I noticed
that I felt like I was talking to someone much older. Afterward I
wondered, what am I even measuring? What made him seem older?
One test adults use is whether you still have the kid flake reflex.
When you're a little kid and you're asked to do something hard, you
can cry and say "I can't do it" and the adults will probably let
you off. As a kid there's a magic button you can press by saying
"I'm just a kid" that will get you out of most difficult situations.
Whereas adults, by definition, are not allowed to flake. They still
do, of course, but when they do they're ruthlessly pruned.
The other way to tell an adult is by how they react to a challenge.
Someone who's not yet an adult will tend to respond to a challenge
from an adult in a way that acknowledges their dominance. If an
adult says "that's a stupid idea," a kid will either crawl away
with his tail between his legs, or rebel. But rebelling presumes
inferiority as much as submission. The adult response to
"that's a stupid idea," is simply to look the other person in the
eye and say "Really? Why do you think so?"
There are a lot of adults who still react childishly to challenges,
of course. What you don't often find are kids who react to challenges
like adults. When you do, you've found an adult, whatever their
age.
2. Too inexperienced
I once wrote that startup founders should be at least 23, and that
people should work for another company for a few years before
starting their own. I no longer believe that, and what changed my
mind is the example of the startups we've funded.
I still think 23 is a better age than 21. But the best way to get
experience if you're 21 is to start a startup. So, paradoxically,
if you're too inexperienced to start a startup, what you should do
is start one. That's a way more efficient cure for inexperience
than a normal job. In fact, getting a normal job may actually make
you less able to start a startup, by turning you into a tame animal
who thinks he needs an office to work in and a product manager to
tell him what software to write.
What really convinced me of this was the Kikos. They started a
startup right out of college. Their inexperience caused them to
make a lot of mistakes. But by the time we funded their second
startup, a year later, they had become extremely formidable. They
were certainly not tame animals. And there is no way they'd have
grown so much if they'd spent that year working at Microsoft, or
even Google. They'd still have been diffident junior programmers.
So now I'd advise people to go ahead and start startups right out
of college. There's no better time to take risks than when you're
young. Sure, you'll probably fail. But even failure will get you
to the ultimate goal faster than getting a job.
It worries me a bit to be saying this, because in effect we're
advising people to educate themselves by failing at our expense,
but it's the truth.
3. Not determined enough
You need a lot of determination to succeed as a startup founder.
It's probably the single best predictor of success.
Some people may not be determined enough to make it. It's
hard for me to say for sure, because I'm so determined that I can't
imagine what's going on in the heads of people who aren't. But I
know they exist.
Most hackers probably underestimate their determination. I've seen
a lot become visibly more determined as they get used to running a
startup. I can think of
several we've funded who would have been delighted at first to be
bought for $2 million, but are now set on world domination.
How can you tell if you're determined enough, when Larry and Sergey
themselves were unsure at first about starting a company? I'm
guessing here, but I'd say the test is whether you're sufficiently
driven to work on your own projects. Though they may have been
unsure whether they wanted to start a company, it doesn't seem as
if Larry and Sergey were meek little research assistants, obediently
doing their advisors' bidding. They started projects of their own.
4. Not smart enough
You may need to be moderately smart to succeed as a startup founder.
But if you're worried about this, you're probably mistaken. If
you're smart enough to worry that you might not be smart enough to
start a startup, you probably are.
And in any case, starting a startup just doesn't require that much
intelligence. Some startups do. You have to be good at math to
write Mathematica. But most companies do more mundane stuff where
the decisive factor is effort, not brains. Silicon Valley can warp
your perspective on this, because there's a cult of smartness here.
People who aren't smart at least try to act that way. But if you
think it takes a lot of intelligence to get rich, try spending a
couple days in some of the fancier bits of New York or LA.
If you don't think you're smart enough to start a startup doing
something technically difficult, just write enterprise software.
Enterprise software companies aren't technology companies, they're
sales companies, and sales depends mostly on effort.
5. Know nothing about business
This is another variable whose coefficient should be zero. You
don't need to know anything about business to start a startup. The
initial focus should be the product. All you need to know in this
phase is how to build things people want. If you succeed, you'll
have to think about how to make money from it. But this is so easy
you can pick it up on the fly.
I get a fair amount of flak for telling founders just to make
something great and not worry too much about making money. And yet
all the empirical evidence points that way: pretty much 100% of
startups that make something popular manage to make money from it.
And acquirers tell me privately that revenue is not what they buy
startups for, but their strategic value. Which means, because they
made something people want. Acquirers know the rule holds for them
too: if users love you, you can always make money from that somehow,
and if they don't, the cleverest business model in the world won't
save you.
So why do so many people argue with me? I think one reason is that
they hate the idea that a bunch of twenty year olds could get rich
from building something cool that doesn't make any money. They
just don't want that to be possible. But how possible it is doesn't
depend on how much they want it to be.
For a while it annoyed me to hear myself described as some kind of
irresponsible pied piper, leading impressionable young hackers down
the road to ruin. But now I realize this kind of controversy is a
sign of a good idea.
The most valuable truths are the ones most people don't believe.
They're like undervalued stocks. If you start with them, you'll
have the whole field to yourself. So when you find an idea you
know is good but most people disagree with, you should not
merely ignore their objections, but push aggressively in that
direction. In this case, that means you should seek out ideas that
would be popular but seem hard to make money from.
We'll bet a seed round you can't make something popular that we
can't figure out how to make money from.
6. No cofounder
Not having a cofounder is a real problem. A startup is too much
for one person to bear. And though we differ from other investors
on a lot of questions, we all agree on this. All investors, without
exception, are more likely to fund you with a cofounder than without.
We've funded two single founders, but in both cases we suggested
their first priority should be to find a cofounder. Both did. But
we'd have preferred them to have cofounders before they applied.
It's not super hard to get a cofounder for a project that's just
been funded, and we'd rather have cofounders committed enough to
sign up for something super hard.
If you don't have a cofounder, what should you do? Get one. It's
more important than anything else. If there's no one where you
live who wants to start a startup with you, move where there are
people who do. If no one wants to work with you on your current
idea, switch to an idea people want to work on.
If you're still in school, you're surrounded by potential cofounders.
A few years out it gets harder to find them. Not only do you have
a smaller pool to draw from, but most already have jobs, and perhaps
even families to support. So if you had friends in college you
used to scheme about startups with, stay in touch with them as well
as you can. That may help keep the dream alive.
It's possible you could meet a cofounder through something like a
user's group or a conference. But I wouldn't be too optimistic.
You need to work with someone to know whether you want them as a
cofounder.
[2]
The real lesson to draw from this is not how to find a cofounder,
but that you should start startups when you're young and there are
lots of them around.
7. No idea
In a sense, it's not a problem if you don't have a good idea, because
most startups change their idea anyway. In the average Y Combinator
startup, I'd guess 70% of the idea is new at the end of the
first three months. Sometimes it's 100%.
In fact, we're so sure the founders are more important than the
initial idea that we're going to try something new this funding
cycle. We're going to let people apply with no idea at all. If you
want, you can answer the question on the application form that asks
what you're going to do with "We have no idea." If you seem really
good we'll accept you anyway. We're confident we can sit down with
you and cook up some promising project.
Really this just codifies what we do already. We put little weight
on the idea. We ask mainly out of politeness. The kind of question
on the application form that we really care about is the one where
we ask what cool things you've made. If what you've made is version
one of a promising startup, so much the better, but the main thing
we care about is whether you're good at making things. Being lead
developer of a popular open source project counts almost as much.
That solves the problem if you get funded by Y Combinator. What
about in the general case? Because in another sense, it is a problem
if you don't have an idea. If you start a startup with no idea,
what do you do next?
So here's the brief recipe for getting startup ideas. Find something
that's missing in your own life, and supply that need—no matter
how specific to you it seems. Steve Wozniak built himself a computer;
who knew so many other people would want them? A need that's narrow
but genuine is a better starting point than one that's broad but
hypothetical. So even if the problem is simply that you don't have
a date on Saturday night, if you can think of a way to fix that by
writing software, you're onto something, because a lot of other
people have the same problem.
8. No room for more startups
A lot of people look at the ever-increasing number of startups and
think "this can't continue." Implicit in their thinking is a
fallacy: that there is some limit on the number of startups there
could be. But this is false. No one claims there's any limit on
the number of people who can work for salary at 1000-person companies.
Why should there be any limit on the number who can work for equity
at 5-person companies?
[3]
Nearly everyone who works is satisfying some kind of need. Breaking
up companies into smaller units doesn't make those needs go away.
Existing needs would probably get satisfied more efficiently by a
network of startups than by a few giant, hierarchical organizations,
but I don't think that would mean less opportunity, because satisfying
current needs would lead to more. Certainly this tends to be the
case in individuals. Nor is there anything wrong with that. We
take for granted things that medieval kings would have considered
effeminate luxuries, like whole buildings heated to spring temperatures
year round. And if things go well, our descendants will take for
granted things we would consider shockingly luxurious. There is
no absolute standard for material wealth. Health care is a component
of it, and that alone is a black hole. For the foreseeable future,
people will want ever more material wealth, so there is no limit
to the amount of work available for companies, and for startups in
particular.
Usually the limited-room fallacy is not expressed directly. Usually
it's implicit in statements like "there are only so many startups
Google, Microsoft, and Yahoo can buy." Maybe, though the list of
acquirers is a lot longer than that. And whatever you think of
other acquirers, Google is not stupid. The reason big companies
buy startups is that they've created something valuable. And why
should there be any limit to the number of valuable startups companies
can acquire, any more than there is a limit to the amount of wealth
individual people want? Maybe there would be practical limits on
the number of startups any one acquirer could assimilate, but if
there is value to be had, in the form of upside that founders are
willing to forgo in return for an immediate payment, acquirers will
evolve to consume it. Markets are pretty smart that way.
9. Family to support
This one is real. I wouldn't advise anyone with a family to start
a startup. I'm not saying it's a bad idea, just that I don't want
to take responsibility for advising it. I'm willing to take
responsibility for telling 22 year olds to start startups. So what
if they fail? They'll learn a lot, and that job at Microsoft will
still be waiting for them if they need it. But I'm not prepared
to cross moms.
What you can do, if you have a family and want to start a startup,
is start a consulting business you can then gradually turn into a
product business. Empirically the chances of pulling that off seem
very small. You're never going to produce Google this way. But at
least you'll never be without an income.
Another way to decrease the risk is to join an existing startup
instead of starting your own. Being one of the first employees of
a startup is a lot like being a founder, in both the good ways and
the bad. You'll be roughly 1/n^2 founder, where n is your employee
number.
As with the question of cofounders, the real lesson here is to start
startups when you're young.
10. Independently wealthy
This is my excuse for not starting a startup. Startups are stressful.
Why do it if you don't need the money? For every "serial entrepreneur,"
there are probably twenty sane ones who think "Start another
company? Are you crazy?"
I've come close to starting new startups a couple times, but I
always pull back because I don't want four years of my life to be
consumed by random schleps. I know this business well enough to
know you can't do it half-heartedly. What makes a good startup
founder so dangerous is his willingness to endure infinite schleps.
There is a bit of a problem with retirement, though. Like a lot
of people, I like to work. And one of the many weird little problems
you discover when you get rich is that a lot of the interesting
people you'd like to work with are not rich. They need to work at
something that pays the bills. Which means if you want to have
them as colleagues, you have to work at something that pays the
bills too, even though you don't need to. I think this is what
drives a lot of serial entrepreneurs, actually.
That's why I love working on Y Combinator so much. It's an excuse
to work on something interesting with people I like.
11. Not ready for commitment
This was my reason for not starting a startup for most of my twenties.
Like a lot of people that age, I valued freedom most of all. I was
reluctant to do anything that required a commitment of more than a
few months. Nor would I have wanted to do anything that completely
took over my life the way a startup does. And that's fine. If you
want to spend your time travelling around, or playing in a band,
or whatever, that's a perfectly legitimate reason not to start a
company.
If you start a startup that succeeds, it's going to consume at least
three or four years. (If it fails, you'll be done a lot quicker.)
So you shouldn't do it if you're not ready for commitments on that
scale. Be aware, though, that if you get a regular job, you'll
probably end up working there for as long as a startup would take,
and you'll find you have much less spare time than you might expect.
So if you're ready to clip on that ID badge and go to that orientation
session, you may also be ready to start that startup.
12. Need for structure
I'm told there are people who need structure in their lives. This
seems to be a nice way of saying they need someone to tell them
what to do. I believe such people exist. There's plenty of empirical
evidence: armies, religious cults, and so on. They may even be the
majority.
If you're one of these people, you probably shouldn't start a
startup. In fact, you probably shouldn't even go to work for one.
In a good startup, you don't get told what to do very much. There
may be one person whose job title is CEO, but till the company has
about twelve people no one should be telling anyone what to do.
That's too inefficient. Each person should just do what they need
to without anyone telling them.
If that sounds like a recipe for chaos, think about a soccer team.
Eleven people manage to work together in quite complicated ways,
and yet only in occasional emergencies does anyone tell anyone else
what to do. A reporter once asked David Beckham if there were any
language problems at Real Madrid, since the players were from about
eight different countries. He said it was never an issue, because
everyone was so good they never had to talk. They all just did the
right thing.
How do you tell if you're independent-minded enough to start a
startup? If you'd bristle at the suggestion that you aren't, then
you probably are.
13. Fear of uncertainty
Perhaps some people are deterred from starting startups because
they don't like the uncertainty. If you go to work for Microsoft,
you can predict fairly accurately what the next few years will be
like—all too accurately, in fact. If you start a startup, anything
might happen.
Well, if you're troubled by uncertainty, I can solve that problem
for you: if you start a startup, it will probably fail. Seriously,
though, this is not a bad way to think
about the whole experience. Hope for the best, but expect the
worst. In the worst case, it will at least be interesting. In the
best case you might get rich.
No one will blame you if the startup tanks, so long as you made a
serious effort. There may once have been a time when employers
would regard that as a mark against you, but they wouldn't now. I
asked managers at big companies, and they all said they'd prefer
to hire someone who'd tried to start a startup and failed over
someone who'd spent the same time working at a big company.
Nor will investors hold it against you, as long as you didn't fail
out of laziness or incurable stupidity. I'm told there's a lot
of stigma attached to failing in other places—in Europe, for
example. Not here. In America, companies, like practically
everything else, are disposable.
14. Don't realize what you're avoiding
One reason people who've been out in the world for a year or two
make better founders than people straight from college is that they
know what they're avoiding. If their startup fails, they'll have
to get a job, and they know how much jobs suck.
If you've had summer jobs in college, you may think you know what
jobs are like, but you probably don't. Summer jobs at technology
companies are not real jobs. If you get a summer job as a waiter,
that's a real job. Then you have to carry your weight. But software
companies don't hire students for the summer as a source of cheap
labor. They do it in the hope of recruiting them when they graduate.
So while they're happy if you produce, they don't expect you to.
That will change if you get a real job after you graduate. Then
you'll have to earn your keep. And since most of what big companies
do is boring, you're going to have to work on boring stuff. Easy,
compared to college, but boring. At first it may seem cool to get
paid for doing easy stuff, after paying to do hard stuff in college.
But that wears off after a few months. Eventually it gets demoralizing
to work on dumb stuff, even if it's easy and you get paid a lot.
And that's not the worst of it. The thing that really sucks about
having a regular job is the expectation that you're supposed to be
there at certain times. Even Google is afflicted with this,
apparently. And what this means, as everyone who's had a regular
job can tell you, is that there are going to be times when you have
absolutely no desire to work on anything, and you're going to have
to go to work anyway and sit in front of your screen and pretend
to. To someone who likes work, as most good hackers do, this is
torture.
In a startup, you skip all that. There's no concept of office hours
in most startups. Work and life just get mixed together. But the
good thing about that is that no one minds if you have a life at
work. In a startup you can do whatever you want most of the time.
If you're a founder, what you want to do most of the time is work.
But you never have to pretend to.
If you took a nap in your office in a big company, it would seem
unprofessional. But if you're starting a startup and you fall
asleep in the middle of the day, your cofounders will just assume
you were tired.
15. Parents want you to be a doctor
A significant number of would-be startup founders are probably
dissuaded from doing it by their parents. I'm not going to say you
shouldn't listen to them. Families are entitled to their own
traditions, and who am I to argue with them? But I will give you
a couple reasons why a safe career might not be what your parents
really want for you.
One is that parents tend to be more conservative for their kids
than they would be for themselves. This is actually a rational
response to their situation. Parents end up sharing more of their
kids' ill fortune than good fortune. Most parents don't mind this;
it's part of the job; but it does tend to make them excessively
conservative. And erring on the side of conservatism is still
erring. In almost everything, reward is proportionate to risk. So
by protecting their kids from risk, parents are, without realizing
it, also protecting them from rewards. If they saw that, they'd
want you to take more risks.
The other reason parents may be mistaken is that, like generals,
they're always fighting the last war. If they want you to be a
doctor, odds are it's not just because they want you to help the
sick, but also because it's a prestigious and lucrative career.
[4]
But not so lucrative or prestigious as it was when their
opinions were formed. When I was a kid in the seventies, a doctor
was the thing to be. There was a sort of golden triangle involving
doctors, Mercedes 450SLs, and tennis. All three vertices now seem
pretty dated.
The parents who want you to be a doctor may simply not realize how
much things have changed. Would they be that unhappy if you were
Steve Jobs instead? So I think the way to deal with your parents'
opinions about what you should do is to treat them like feature
requests. Even if your only goal is to please them, the way to do
that is not simply to give them what they ask for. Instead think
about why they're asking for something, and see if there's a better
way to give them what they need.
16. A job is the default
This leads us to the last and probably most powerful reason people
get regular jobs: it's the default thing to do. Defaults are
enormously powerful, precisely because they operate without any
conscious choice.
To almost everyone except criminals, it seems an axiom that if you
need money, you should get a job. Actually this tradition is not
much more than a hundred years old. Before that, the default way
to make a living was by farming. It's a bad plan to treat something
only a hundred years old as an axiom. By historical standards,
that's something that's changing pretty rapidly.
We may be seeing another such change right now. I've read a lot
of economic history, and I understand the startup world pretty well,
and it now seems to me fairly likely that we're seeing the beginning
of a change like the one from farming to manufacturing.
And you know what? If you'd been around when that change began
(around 1000 in Europe) it would have seemed to nearly everyone
that running off to the city to make your fortune was a crazy thing
to do. Though serfs were in principle forbidden to leave their
manors, it can't have been that hard to run away to a city. There
were no guards patrolling the perimeter of the village. What
prevented most serfs from leaving was that it seemed insanely risky.
Leave one's plot of land? Leave the people you'd spent your whole
life with, to live in a giant city of three or four thousand complete
strangers? How would you live? How would you get food, if you
didn't grow it?
Frightening as it seemed to them, it's now the default with us to
live by our wits. So if it seems risky to you to start a startup,
think how risky it once seemed to your ancestors to live as we do
now. Oddly enough, the people who know this best are the very ones
trying to get you to stick to the old model. How can Larry and
Sergey say you should come work as their employee, when they didn't
get jobs themselves?
Now we look back on medieval peasants and wonder how they stood it.
How grim it must have been to till the same fields your whole life
with no hope of anything better, under the thumb of lords and priests
you had to give all your surplus to and acknowledge as your masters.
I wouldn't be surprised if one day people look back on what we
consider a normal job in the same way. How grim it would be to
commute every day to a cubicle in some soulless office complex, and
be told what to do by someone you had to acknowledge as a boss—someone
who could call you into their office and say "take a seat,"
and you'd sit! Imagine having to ask permission to release
software to users. Imagine being sad on Sunday afternoons because
the weekend was almost over, and tomorrow you'd have to get up and
go to work. How did they stand it?
It's exciting to think we may be on the cusp of another shift like
the one from farming to manufacturing. That's why I care about
startups. Startups aren't interesting just because they're a way
to make a lot of money. I couldn't care less about other ways to
do that, like speculating in securities. At most those are interesting
the way puzzles are. There's more going on with startups. They
may represent one of those rare, historic shifts in the way
wealth is created.
That's ultimately what drives us to work on Y Combinator. We want
to make money, if only so we don't have to stop doing it, but that's
not the main goal. There have only been a handful of these great
economic shifts in human history. It would be an amazing hack to
make one happen faster.
Notes
[1]
The only people who lost were us. The angels had convertible
debt, so they had first claim on the proceeds of the auction. Y
Combinator only got 38 cents on the dollar.
[2]
The best kind of organization for that might be an open source
project, but those don't involve a lot of face to face meetings.
Maybe it would be worth starting one that did.
[3]
There need to be some number of big companies to acquire the
startups, so the number of big companies couldn't decrease to zero.
[4]
Thought experiment: If doctors did the same work, but as
impoverished outcasts, which parents would still want their kids
to be doctors?
Thanks to Trevor Blackwell, Jessica Livingston, and Robert
Morris for reading drafts of this, to the founders of Zenter
for letting me use their web-based PowerPoint killer even though
it isn't launched yet, and to Ming-Hay Luk
of the Berkeley CSUA for inviting me to speak.
Comment on this essay.
We're really excited about your project, and we want to keep in close touch as you develop it further.Translated into more straightforward language, this means: We're not investing in you, but we may change our minds if it looks like you're taking off. Sometimes they're more candid and say explicitly that they need to "see some traction." They'll invest in you if you start to get lots of users. But so would any VC. So all they're saying is that you're still at square 1.
Comment on this essay.
August 2007
(This is a talk I gave at the last
Y Combinator dinner of the summer.
Usually we don't have a speaker at the last dinner; it's more of
a party. But it seemed worth spoiling the atmosphere if I could
save some of the startups from
preventable deaths. So at the last minute I cooked up this rather
grim talk. I didn't mean this as an essay; I wrote it down
because I only had two hours before dinner and think fastest while
writing.)
A couple days ago I told a reporter that we expected about a third
of the companies we funded to succeed. Actually I was being
conservative. I'm hoping it might be as much as a half. Wouldn't
it be amazing if we could achieve a 50% success rate?
Another way of saying that is that half of you are going to die. Phrased
that way, it doesn't sound good at all. In fact, it's kind of weird
when you think about it, because our definition of success is that
the founders get rich. If half the startups we fund succeed, then
half of you are going to get rich and the other half are going to
get nothing.
If you can just avoid dying, you get rich. That sounds like a joke,
but it's actually a pretty good description of what happens in a
typical startup. It certainly describes what happened in Viaweb.
We avoided dying till we got rich.
It was really close, too. When we were visiting Yahoo to talk about
being acquired, we had to interrupt everything and borrow one of
their conference rooms to talk down an investor who was about to
back out of a new funding round we needed to stay alive. So even
in the middle of getting rich we were fighting off the grim reaper.
You may have heard that quote about luck consisting of opportunity
meeting preparation. You've now done the preparation. The work
you've done so far has, in effect, put you in a position to get
lucky: you can now get rich by not letting your company die. That's
more than most people have. So let's talk about how not to die.
We've done this five times now, and we've seen a bunch of startups
die. About 10 of them so far. We don't know exactly what happens
when they die, because they generally don't die loudly and heroically.
Mostly they crawl off somewhere and die.
For us the main indication of impending doom is when we don't hear
from you. When we haven't heard from, or about, a startup for a
couple months, that's a bad sign. If we send them an email asking
what's up, and they don't reply, that's a really bad sign. So far
that is a 100% accurate predictor of death.
Whereas if a startup regularly does new deals and releases and
either sends us mail or shows up at YC events, they're probably
going to live.
I realize this will sound naive, but maybe the linkage works in
both directions. Maybe if you can arrange that we keep hearing
from you, you won't die.
That may not be so naive as it sounds. You've probably noticed
that having dinners every Tuesday with us and the other founders
causes you to get more done than you would otherwise, because every
dinner is a mini Demo Day. Every dinner is a kind of a deadline.
So the mere constraint of staying in regular contact with us will
push you to make things happen, because otherwise you'll be embarrassed
to tell us that you haven't done anything new since the last time
we talked.
If this works, it would be an amazing hack. It would be pretty
cool if merely by staying in regular contact with us you could get
rich. It sounds crazy, but there's a good chance that would work.
A variant is to stay in touch with other YC-funded startups. There
is now a whole neighborhood of them in San Francisco. If you move
there, the peer pressure that made you work harder all summer will
continue to operate.
When startups die, the official cause of death is always either
running out of money or a critical founder bailing. Often the two
occur simultaneously. But I think the underlying cause is usually
that they've become demoralized. You rarely hear of a startup
that's working around the clock doing deals and pumping out new
features, and dies because they can't pay their bills and their ISP
unplugs their server.
Startups rarely die in mid keystroke. So keep typing!
If so many startups get demoralized and fail when merely by hanging
on they could get rich, you have to assume that running a startup
can be demoralizing. That is certainly true. I've been there, and
that's why I've never done another startup. The low points in a
startup are just unbelievably low. I bet even Google had moments
where things seemed hopeless.
Knowing that should help. If you know it's going to feel terrible
sometimes, then when it feels terrible you won't think "ouch, this
feels terrible, I give up." It feels that way for everyone. And
if you just hang on, things will probably get better. The metaphor
people use to describe the way a startup feels is at least a roller
coaster and not drowning. You don't just sink and sink; there are
ups after the downs.
Another feeling that seems alarming but is in fact normal in a
startup is the feeling that what you're doing isn't working. The
reason you can expect to feel this is that what you do probably
won't work. Startups almost never get it right the first time.
Much more commonly you launch something, and no one cares. Don't
assume when this happens that you've failed. That's normal for
startups. But don't sit around doing nothing. Iterate.
I like Paul Buchheit's suggestion of trying to make something that
at least someone really loves. As long as you've made something
that a few users are ecstatic about, you're on the right track. It
will be good for your morale to have even a handful of users who
really love you, and startups run on morale. But also it
will tell you what to focus on. What is it about you that they
love? Can you do more of that? Where can you find more people who
love that sort of thing? As long as you have some core of users
who love you, all you have to do is expand it. It may take a while,
but as long as you keep plugging away, you'll win in the end. Both
Blogger and Delicious did that. Both took years to succeed. But
both began with a core of fanatically devoted users, and all Evan
and Joshua had to do was grow that core incrementally.
Wufoo is
on the same trajectory now.
So when you release something and it seems like no one cares, look
more closely. Are there zero users who really love you, or is there
at least some little group that does? It's quite possible there
will be zero. In that case, tweak your product and try again.
Every one of you is working on a space that contains at least one
winning permutation somewhere in it. If you just keep trying,
you'll find it.
Let me mention some things not to do. The number one thing not to
do is other things. If you find yourself saying a sentence that
ends with "but we're going to keep working on the startup," you are
in big trouble. Bob's going to grad school, but we're going to
keep working on the startup. We're moving back to Minnesota, but
we're going to keep working on the startup. We're taking on some
consulting projects, but we're going to keep working on the startup.
You may as well just translate these to "we're giving up on the
startup, but we're not willing to admit that to ourselves," because
that's what it means most of the time. A startup is so hard that
working on it can't be preceded by "but."
In particular, don't go to graduate school, and don't start other
projects. Distraction is fatal to startups. Going to (or back to)
school is a huge predictor of death because in addition to the
distraction it gives you something to say you're doing. If you're
only doing a startup, then if the startup fails, you fail. If
you're in grad school and your startup fails, you can say later "Oh
yeah, we had this startup on the side when I was in grad school,
but it didn't go anywhere."
You can't use euphemisms like "didn't go anywhere" for something
that's your only occupation. People won't let you.
One of the most interesting things we've discovered from working
on Y Combinator is that founders are more motivated by the fear of
looking bad than by the hope of getting millions of dollars. So
if you want to get millions of dollars, put yourself in a position
where failure will be public and humiliating.
When we first met the founders of
Octopart, they seemed very smart,
but not a great bet to succeed, because they didn't seem especially
committed. One of the two founders was still in grad school. It
was the usual story: he'd drop out if it looked like the startup
was taking off. Since then he has not only dropped out of grad
school, but appeared full length in
Newsweek
with the word "Billionaire"
printed across his chest. He just cannot fail now. Everyone he
knows has seen that picture. Girls who dissed him in high school
have seen it. His mom probably has it on the fridge. It would be
unthinkably humiliating to fail now. At this point he is committed
to fight to the death.
I wish every startup we funded could appear in a Newsweek article
describing them as the next generation of billionaires, because
then none of them would be able to give up. The success rate would
be 90%. I'm not kidding.
When we first knew the Octoparts they were lighthearted, cheery
guys. Now when we talk to them they seem grimly determined. The
electronic parts distributors are trying to squash them to keep
their monopoly pricing. (If it strikes you as odd that people still
order electronic parts out of thick paper catalogs in 2007, there's
a reason for that. The distributors want to prevent the transparency
that comes from having prices online.) I feel kind of bad that
we've transformed these guys from lighthearted to grimly determined.
But that comes with the territory. If a startup succeeds, you get
millions of dollars, and you don't get that kind of money just by
asking for it. You have to assume it takes some amount of pain.
And however tough things get for the Octoparts, I predict they'll
succeed. They may have to morph themselves into something totally
different, but they won't just crawl off and die. They're smart;
they're working in a promising field; and they just cannot give up.
All of you guys already have the first two. You're all smart and
working on promising ideas. Whether you end up among the living
or the dead comes down to the third ingredient, not giving up.
So I'll tell you now: bad shit is coming. It always is in a startup.
The odds of getting from launch to liquidity without some kind of
disaster happening are one in a thousand. So don't get demoralized.
When the disaster strikes, just say to yourself, ok, this was what
Paul was talking about. What did he say to do? Oh, yeah. Don't
give up.

Hitherto the people attracted to philosophy have been mostly those who loved the big generalizations, which were all wrong, so that few people with exact minds have taken up the subject. [11]His response was to launch Wittgenstein at it, with dramatic results.
Gender is not like some of the other grammatical modes which express precisely a mode of conception without any reality that corresponds to the conceptual mode, and consequently do not express precisely something in reality by which the intellect could be moved to conceive a thing the way it does, even where that motive is not something in the thing as such. [14]The singularity I've described is not going away. There's a market for writing that sounds impressive and can't be disproven. There will always be both supply and demand. So if one group abandons this territory, there will always be others ready to occupy it.
What are the most general truths?let's try to answer the question
Of all the useful things we can say, which are the most general?The test of utility I propose is whether we cause people who read what we've written to do anything differently afterward. Knowing we have to give definite (if implicit) advice will keep us from straying beyond the resolution of the words we're using.
October 2007
(This essay is derived from a keynote at FOWA in October 2007.)
There's something interesting happening right now. Startups are
undergoing the same transformation that technology does when it becomes
cheaper.
It's a pattern we see over and over in technology. Initially
there's some device that's very expensive and made
in small quantities. Then someone discovers how to make them cheaply;
many more get built; and as a result they can be used in new ways.
Computers are a familiar example. When I was a kid, computers were
big, expensive machines built one at a time. Now they're a commodity.
Now we can stick computers in everything.
This pattern is very old. Most of the turning
points in economic history are instances of it. It happened to
steel in the 1850s, and to power in the 1780s.
It happened to cloth manufacture in the thirteenth century, generating
the wealth that later brought about the Renaissance. Agriculture
itself was an instance of this pattern.
Now as well as being produced by startups, this pattern
is happening to startups. It's so cheap to start web startups
that orders of magnitudes more will be started. If the pattern
holds true, that should cause dramatic changes.
1. Lots of Startups
So my first prediction about the future of web startups is pretty
straightforward: there will be a lot of them. When starting a
startup was expensive, you had to get the permission of investors
to do it. Now the only threshold is courage.
Even that threshold is getting lower, as people watch others take
the plunge and survive. In the last batch of startups we funded,
we had several founders who said they'd thought of applying before,
but weren't sure and got jobs instead. It was only after hearing
reports of friends who'd done it that they decided to try it
themselves.
Starting a startup is hard, but having a 9 to 5 job is hard too,
and in some ways a worse kind of hard. In a startup you have lots
of worries, but you don't have that feeling that your life is flying
by like you do in a big company. Plus in a startup you could make
much more money.
As word spreads that startups work, the number may grow
to a point that would now seem surprising.
We now think of it as normal to have a job at a company, but this
is the thinnest of historical veneers. Just two or three
lifetimes ago, most people in what are now called industrialized
countries lived by farming. So while it may seem surprising to
propose that large numbers of people will change the way they make
a living, it would be more surprising if they didn't.
2. Standardization
When technology makes something dramatically cheaper, standardization
always follows. When you make things in large volumes you tend
to standardize everything that doesn't need to change.
At Y Combinator we still only have four people, so we try to
standardize everything. We could hire employees, but we want to be
forced to figure out how to scale investing.
We often tell startups to release a minimal version one quickly,
then let the needs of the users determine what to do
next. In essense, let the market design the product. We've
done the same thing ourselves. We think of the techniques we're
developing for dealing with large numbers of startups as like
software. Sometimes it literally is software, like
Hacker News and
our application system.
One of the most important things we've been working on standardizing
are investment terms. Till now investment terms have been
individually negotiated.
This is a problem for founders, because it makes raising money
take longer and cost more in legal fees. So as well as using the
same paperwork for every deal we do, we've commissioned generic
angel paperwork that all the startups we fund can use for future
rounds.
Some investors will still want to cook up their own deal terms.
Series A rounds, where you raise a million dollars or more, will
be custom deals for the forseeable future. But I think angel rounds
will start to be done mostly with standardized agreements. An angel
who wants to insert a bunch of complicated terms into the agreement
is probably not one you want anyway.
3. New Attitude to Acquisition
Another thing I see starting to get standardized is acquisitions.
As the volume of startups increases, big companies will start to
develop standardized procedures that make acquisitions little
more work than hiring someone.
Google is the leader here, as in so many areas of technology. They
buy a lot of startups— more than most people realize, because they
only announce a fraction of them. And being Google, they're
figuring out how to do it efficiently.
One problem they've solved is how to think about acquisitions. For
most companies, acquisitions still carry some stigma of inadequacy.
Companies do them because they have to, but there's usually some
feeling they shouldn't have to—that their own programmers should
be able to build everything they need.
Google's example should cure the rest of the world of this idea.
Google has by far the best programmers of any public technology
company. If they don't have a problem doing acquisitions, the
others should have even less problem. However many Google does,
Microsoft should do ten times as many.
One reason Google doesn't have a problem with acquisitions
is that they know first-hand the quality of the people they can get
that way. Larry and Sergey only started Google after making the
rounds of the search engines trying to sell their idea and finding
no takers. They've been the guys coming in to visit the big
company, so they know who might be sitting across that conference
table from them.
4. Riskier Strategies are Possible
Risk is always proportionate to reward. The way to get really big
returns is to do things that seem crazy, like starting a new search
engine in 1998, or turning down a billion dollar acquisition offer.
This has traditionally been a problem in venture funding. Founders
and investors have different attitudes to risk. Knowing that risk
is on average proportionate to reward, investors like risky strategies,
while founders, who don't have a big enough sample size to care
what's true on average, tend to be more conservative.
If startups are easy to start, this conflict goes away, because
founders can start them younger, when it's rational to take more
risk, and can start more startups total in their careers. When
founders can do lots of startups, they can start to look at the
world in the same portfolio-optimizing way as investors. And that
means the overall amount of wealth created can be greater, because
strategies can be riskier.
5. Younger, Nerdier Founders
If startups become a cheap commodity, more people will be able to
have them, just as more people could have computers once microprocessors
made them cheap. And in particular, younger and more technical
founders will be able to start startups than could before.
Back when it cost a lot to start a startup, you had to convince
investors to let you do it. And that required very different skills
from actually doing the startup. If investors were perfect judges,
the two would require exactly the same skills. But unfortunately
most investors are terrible judges. I know because I see behind
the scenes what an enormous amount of work it takes to raise money,
and the amount of selling required in an industry is always inversely
proportional to the judgement of the buyers.
Fortunately, if startups get cheaper to start, there's another way
to convince investors. Instead of going to venture capitalists
with a business plan and trying to convince them to fund it, you
can get a product launched on a few tens of thousands of dollars
of seed money from us or your uncle, and approach them with a
working company instead of a plan for one. Then instead of
having to seem smooth and confident, you can just point them to
Alexa.
This way of convincing investors is better suited to hackers, who
often went into technology in part because they felt uncomfortable
with the amount of fakeness required in other fields.
6. Startup Hubs Will Persist
It might seem that if startups get cheap to start, it will mean the
end of startup hubs like Silicon Valley. If all you need to start
a startup is rent money, you should be able to do it anywhere.
This is kind of true and kind of false. It's true that you can now
start a startup anywhere. But you have to do more with a
startup than just start it. You have to make it succeed. And that
is more likely to happen in a startup hub.
I've thought a lot about this question, and it seems to me the
increasing cheapness of web startups will if anything increase the
importance of startup hubs. The value of startup hubs, like centers
for any kind of business, lies in something very old-fashioned:
face to face meetings. No technology in the immediate future will
replace walking down University Ave and running into a friend who
tells you how to fix a bug that's been bothering you all weekend,
or visiting a friend's startup down the street and ending up in a
conversation with one of their investors.
The question of whether to be in a startup hub is like the question
of whether to take outside investment. The question is not whether
you need it, but whether it brings any advantage at all.
Because anything that brings an advantage will give your competitors
an advantage over you if they do it and you don't. So if you hear
someone saying "we don't need to be in Silicon Valley," that use
of the word "need" is a sign they're not even thinking about the
question right.
And while startup hubs are as powerful magnets as ever, the increasing
cheapness of starting a startup means the particles they're attracting
are getting lighter. A startup now can be just a pair of 22 year
old guys. A company like that can move much more easily than one
with 10 people, half of whom have kids.
We know because we make people move for Y Combinator, and it doesn't
seem to be a problem. The advantage of being able to work together
face to face for three months outweighs the inconvenience of moving.
Ask anyone who's done it.
The mobility of seed-stage startups means that seed funding is a
national business. One of the most common emails we get is from
people asking if we can help them set up a local clone of Y Combinator.
But this just wouldn't work. Seed funding isn't regional, just as
big research universities aren't.
Is seed funding not merely national, but international? Interesting
question. There are signs it may be. We've had an ongoing
stream of founders from outside the US, and they tend to do
particularly well, because they're all people who were so determined
to succeed that they were willing to move to another country to do
it.
The more mobile startups get, the harder it would be to start new
silicon valleys. If startups are mobile, the best local talent
will go to the real Silicon Valley,
and all they'll get at the local one will be the people who didn't
have the energy to move.
This is not a nationalistic idea, incidentally. It's cities that
compete, not countries. Atlanta is just as hosed as Munich.
7. Better Judgement Needed
If the number of startups increases dramatically, then the people
whose job is to judge them are going to have to get better at
it. I'm thinking particularly of investors and acquirers. We now
get on the order of 1000 applications a year. What are we going
to do if we get 10,000?
That's actually an alarming idea. But we'll figure out some kind
of answer. We'll have to. It will probably involve writing some
software, but fortunately we can do that.
Acquirers will also have to get better at picking winners.
They generally do better than investors, because they pick
later, when there's more performance to measure. But even at the
most advanced acquirers, identifying companies to
buy is extremely ad hoc, and completing the acquisition often
involves a great deal of unneccessary friction.
I think acquirers may eventually have chief acquisition officers
who will both identify good acquisitions and make the deals happen.
At the moment those two functions are separate. Promising new
startups are often discovered by developers. If someone powerful
enough wants to buy them, the deal is handed over to corp dev guys
to negotiate. It would be better if both were combined in
one group, headed by someone with a technical background and some
vision of what they wanted to accomplish. Maybe in the future big
companies will have both a VP of Engineering responsible for
technology developed in-house, and a CAO responsible for bringing
technology in from outside.
At the moment, there is no one within big companies who gets in
trouble when they buy a startup for $200 million that they could
have bought earlier for $20 million. There should start to be
someone who gets in trouble for that.
8. College Will Change
If the best hackers start their own companies after college
instead of getting jobs, that will change what happens in college.
Most of these changes will be for the better. I think the experience
of college is warped in a bad way by the expectation that afterward
you'll be judged by potential employers.
One change will be in the meaning of "after
college," which will switch from when one graduates from college
to when one leaves it. If you're starting your own company, why
do you need a degree? We don't encourage people to start startups
during college, but the best founders are certainly
capable of it. Some of the most successful companies we've funded
were started by undergrads.
I grew up in a time where college degrees seemed really important,
so I'm alarmed to be saying things like this, but there's nothing
magical about a degree. There's nothing that magically changes
after you take that last exam. The importance of degrees is due
solely to the administrative needs of large organizations. These
can certainly affect your life—it's hard to get into grad
school, or to get a work visa in the US, without an undergraduate
degree—but tests like this will matter less and
less.
As well as mattering less whether students get degrees, it will
also start to matter less where they go to college. In a startup
you're judged by users, and they don't care where you went to
college. So in a world of startups, elite universities will play
less of a role as gatekeepers. In the US it's a national scandal
how easily children of rich parents game college admissions.
But the way this problem ultimately gets solved may not be by
reforming the universities but by going around them. We in the
technology world are used to that sort of solution: you don't beat
the incumbents; you redefine the problem to make them irrelevant.
The greatest value of universities is not the brand name or perhaps
even the classes so much as the people you meet. If
it becomes common to start a startup after college, students may start
trying to maximize this. Instead of focusing on getting
internships at companies they want to work for, they may start
to focus on working with other students they want as cofounders.
What students do in their classes will change too. Instead of
trying to get good grades to impress future employers, students
will try to learn things. We're talking about some pretty dramatic
changes here.
9. Lots of Competitors
If it gets easier to start a startup, it's easier for competitors too.
That doesn't erase the advantage of
increased cheapness, however. You're not all playing a zero-sum
game. There's not some fixed number of startups that can succeed,
regardless of how many are started.
In fact, I don't think there's any limit to the number of startups
that could succeed. Startups succeed by creating wealth, which is
the satisfaction of people's desires. And people's desires seem
to be effectively infinite, at least in the short term.
What the increasing number of startups does mean is that you won't
be able to sit on a good idea. Other people have your idea, and
they'll be increasingly likely to do something about it.
10. Faster Advances
There's a good side to that, at least for consumers of
technology. If people get right to work implementing ideas instead
of sitting on them, technology will evolve faster.
Some kinds of innovations happen a company at a time, like the
punctuated equilibrium model of evolution. There are some kinds
of ideas that are so threatening that it's hard for big companies
even to think of them. Look at what a hard time Microsoft is
having discovering web apps. They're like a character in a movie
that everyone in the audience can see something bad is about to
happen to, but who can't see it himself. The big innovations
that happen a company at a time will obviously happen faster if
the rate of new companies increases.
But in fact there will be a double speed increase. People won't
wait as long to act on new ideas, but also those ideas will
increasingly be developed within startups rather than big companies.
Which means technology will evolve faster per company as well.
Big companies are just not a good place to make things happen fast.
I talked recently to a founder whose startup had been acquired by
a big company. He was a precise sort of guy, so he'd measured their
productivity before and after. He counted lines of code, which can
be a dubious measure, but in this case was meaningful because it
was the same group of programmers. He found they were one thirteenth
as productive after the acquisition.
The company that bought them was not a particularly stupid one.
I think what he was measuring was mostly the cost of bigness. I
experienced this myself, and his number sounds about right. There's
something about big companies that just sucks the energy out of
you.
Imagine what all that energy could do if it were put to use. There
is an enormous latent capacity in the world's hackers that most
people don't even realize is there. That's the main reason we do
Y Combinator: to let loose all this energy by making it easy for
hackers to start their own startups.
A Series of Tubes
The process of starting startups is currently like the plumbing in
an old house. The pipes are narrow and twisty, and there are leaks
in every joint. In the future this mess will gradually be replaced
by a single, huge pipe. The water will still have to get from A
to B, but it will get there faster and without the risk of spraying
out through some random leak.
This will change a lot of things for the better. In a big, straight
pipe like that, the force of being measured by one's performance
will propagate back through the whole system. Performance is always
the ultimate test, but there are so many kinks in the plumbing now
that most people are insulated from it most of the time. So you
end up with a world in which high school students think they need
to get good grades to get into elite colleges, and college students
think they need to get good grades to impress employers, within
which the employees waste most of their time in political battles,
and from which consumers have to buy anyway because there are so
few choices. Imagine if that sequence became a big, straight pipe.
Then the effects of being measured by performance would propagate
all the way back to high school, flushing out all the arbitrary
stuff people are measured by now. That is the future of web startups.
Thanks to Brian Oberkirch and Simon Willison for inviting me to
speak, and the crew at Carson Systems for making everything run smoothly.

Comment on this essay.
Something about hacker culture that never really set well with me was this � the nastiness. ... I just don't understand why people troll like they do.I've thought a lot over the last couple years about the problem of trolls. It's an old one, as old as forums, but we're still just learning what the causes are and how to address them.

Comment on this essay.
March 2008, rev. June 2008
Technology tends to separate normal from natural. Our bodies
weren't designed to eat the foods that people in rich countries eat, or
to get so little exercise.
There may be a similar problem with the way we work:
a normal job may be as bad for us intellectually as white flour
or sugar is for us physically.
I began to suspect this after spending several years working
with startup founders. I've now worked with over 200 of them, and I've
noticed a definite difference between programmers working on their
own startups and those working for large organizations.
I wouldn't say founders seem happier, necessarily;
starting a startup can be very stressful. Maybe the best way to put
it is to say that they're happier in the sense that your body is
happier during a long run than sitting on a sofa eating
doughnuts.
Though they're statistically abnormal, startup founders seem to be
working in a way that's more natural for humans.
I was in Africa last year and saw a lot of animals in the wild that
I'd only seen in zoos before. It was remarkable how different they
seemed. Particularly lions. Lions in the wild seem about ten times
more alive. They're like different animals. I suspect that working
for oneself feels better to humans in much the same way that living
in the wild must feel better to a wide-ranging predator like a lion.
Life in a zoo is easier, but it isn't the life they were designed
for.
Trees
What's so unnatural about working for a big company? The root of
the problem is that humans weren't meant to work in such large
groups.
Another thing you notice when you see animals in the wild is that
each species thrives in groups of a certain size. A herd of impalas
might have 100 adults; baboons maybe 20; lions rarely 10. Humans
also seem designed to work in groups, and what I've read about
hunter-gatherers accords with research on organizations and my own
experience to suggest roughly what the ideal size is: groups of 8
work well; by 20 they're getting hard to manage; and a group of 50
is really unwieldy.
[1]
Whatever the upper limit is, we are clearly not meant to work in
groups of several hundred. And yet—for reasons having more
to do with technology than human nature—a great many people
work for companies with hundreds or thousands of employees.
Companies know groups that large wouldn't work, so they divide
themselves into units small enough to work together. But to
coordinate these they have to introduce something new: bosses.
These smaller groups are always arranged in a tree structure. Your
boss is the point where your group attaches to the tree. But when
you use this trick for dividing a large group into smaller ones,
something strange happens that I've never heard anyone mention
explicitly. In the group one level up from yours, your boss
represents your entire group. A group of 10 managers is not merely
a group of 10 people working together in the usual way. It's really
a group of groups. Which means for a group of 10 managers to work
together as if they were simply a group of 10 individuals, the group
working for each manager would have to work as if they were a single
person—the workers and manager would each share only one
person's worth of freedom between them.
In practice a group of people are never able to act as if they were
one person. But in a large organization divided into groups in
this way, the pressure is always in that direction. Each group
tries its best to work as if it were the small group of individuals
that humans were designed to work in. That was the point of creating
it. And when you propagate that constraint, the result is that
each person gets freedom of action in inverse proportion to the
size of the entire tree.
[2]
Anyone who's worked for a large organization has felt this. You
can feel the difference between working for a company with 100
employees and one with 10,000, even if your group has only 10 people.
Corn Syrup
A group of 10 people within a large organization is a kind of fake
tribe. The number of people you interact with is about right. But
something is missing: individual initiative. Tribes of hunter-gatherers
have much more freedom. The leaders have a little more power than other
members of the tribe, but they don't generally tell them what to
do and when the way a boss can.
It's not your boss's fault. The real problem is that in the group
above you in the hierarchy, your entire group is one virtual person.
Your boss is just the way that constraint is imparted to you.
So working in a group of 10 people within a large organization feels
both right and wrong at the same time. On the surface it feels
like the kind of group you're meant to work in, but something major
is missing. A job at a big company is like high fructose corn
syrup: it has some of the qualities of things you're meant to like,
but is disastrously lacking in others.
Indeed, food is an excellent metaphor to explain what's wrong with
the usual sort of job.
For example, working for a big company is the default thing to do,
at least for programmers. How bad could it be? Well, food shows
that pretty clearly. If you were dropped at a random point in
America today, nearly all the food around you would be bad for you.
Humans were not designed to eat white flour, refined sugar, high
fructose corn syrup, and hydrogenated vegetable oil. And yet if
you analyzed the contents of the average grocery store you'd probably
find these four ingredients accounted for most of the calories.
"Normal" food is terribly bad for you. The only people who eat
what humans were actually designed to eat are a few Birkenstock-wearing
weirdos in Berkeley.
If "normal" food is so bad for us, why is it so common? There are
two main reasons. One is that it has more immediate appeal. You
may feel lousy an hour after eating that pizza, but eating the first
couple bites feels great. The other is economies of scale.
Producing junk food scales; producing fresh vegetables doesn't.
Which means (a) junk food can be very cheap, and (b) it's worth
spending a lot to market it.
If people have to choose between something that's cheap, heavily
marketed, and appealing in the short term, and something that's
expensive, obscure, and appealing in the long term, which do you
think most will choose?
It's the same with work. The average MIT graduate wants to work
at Google or Microsoft, because it's a recognized brand, it's safe,
and they'll get paid a good salary right away. It's the job
equivalent of the pizza they had for lunch. The drawbacks will
only become apparent later, and then only in a vague sense of
malaise.
And founders and early employees of startups, meanwhile, are like
the Birkenstock-wearing weirdos of Berkeley: though a tiny minority
of the population, they're the ones living as humans are meant to.
In an artificial world, only extremists live naturally.
Programmers
The restrictiveness of big company jobs is particularly hard on
programmers, because the essence of programming is to build new
things. Sales people make much the same pitches every day; support
people answer much the same questions; but once you've written a
piece of code you don't need to write it again. So a programmer
working as programmers are meant to is always making new things.
And when you're part of an organization whose structure gives each
person freedom in inverse proportion to the size of the tree, you're
going to face resistance when you do something new.
This seems an inevitable consequence of bigness. It's true even
in the smartest companies. I was talking recently to a founder who
considered starting a startup right out of college, but went to
work for Google instead because he thought he'd learn more there.
He didn't learn as much as he expected. Programmers learn by doing,
and most of the things he wanted to do, he couldn't—sometimes
because the company wouldn't let him, but often because the company's
code wouldn't let him. Between the drag of legacy code, the overhead
of doing development in such a large organization, and the restrictions
imposed by interfaces owned by other groups, he could only try a
fraction of the things he would have liked to. He said he has
learned much more in his own startup, despite the fact that he has
to do all the company's errands as well as programming, because at
least when he's programming he can do whatever he wants.
An obstacle downstream propagates upstream. If you're not allowed
to implement new ideas, you stop having them. And vice versa: when
you can do whatever you want, you have more ideas about what to do.
So working for yourself makes your brain more powerful in the same
way a low-restriction exhaust system makes an engine more powerful.
Working for yourself doesn't have to mean starting a startup, of
course. But a programmer deciding between a regular job at a big
company and their own startup is probably going to learn more doing
the startup.
You can adjust the amount of freedom you get by scaling the size
of company you work for. If you start the company, you'll have the
most freedom. If you become one of the first 10 employees you'll
have almost as much freedom as the founders. Even a company with
100 people will feel different from one with 1000.
Working for a small company doesn't ensure freedom. The tree
structure of large organizations sets an upper bound on freedom,
not a lower bound. The head of a small company may still choose
to be a tyrant. The point is that a large organization is compelled
by its structure to be one.
Consequences
That has real consequences for both organizations and individuals.
One is that companies will inevitably slow down as they grow larger,
no matter how hard they try to keep their startup mojo. It's a
consequence of the tree structure that every large organization is
forced to adopt.
Or rather, a large organization could only avoid slowing down if
they avoided tree structure. And since human nature limits the
size of group that can work together, the only way I can imagine
for larger groups to avoid tree structure would be to have no
structure: to have each group actually be independent, and to work
together the way components of a market economy do.
That might be worth exploring. I suspect there are already some
highly partitionable businesses that lean this way. But I don't
know any technology companies that have done it.
There is one thing companies can do short of structuring themselves
as sponges: they can stay small. If I'm right, then it really
pays to keep a company as small as it can be at every stage.
Particularly a technology company. Which means it's doubly important
to hire the best people. Mediocre hires hurt you twice: they get
less done, but they also make you big, because you need more of
them to solve a given problem.
For individuals the upshot is the same: aim small. It will always
suck to work for large organizations, and the larger the organization,
the more it will suck.
In an essay I wrote a couple years ago
I advised graduating seniors
to work for a couple years for another company before starting their
own. I'd modify that now. Work for another company if you want
to, but only for a small one, and if you want to start your own
startup, go ahead.
The reason I suggested college graduates not start startups immediately
was that I felt most would fail. And they will. But ambitious
programmers are better off doing their own thing and failing than
going to work at a big company. Certainly they'll learn more. They
might even be better off financially. A lot of people in their
early twenties get into debt, because their expenses grow even
faster than the salary that seemed so high when they left school.
At least if you start a startup and fail your net worth will be
zero rather than negative.
[3]
We've now funded so many different types of founders that we have
enough data to see patterns, and there seems to be no benefit from
working for a big company. The people who've worked for a few years
do seem better than the ones straight out of college, but only
because they're that much older.
The people who come to us from big companies often seem kind of
conservative. It's hard to say how much is because big companies
made them that way, and how much is the natural conservatism that
made them work for the big companies in the first place. But
certainly a large part of it is learned. I know because I've seen
it burn off.
Having seen that happen so many times is one of the things that
convinces me that working for oneself, or at least for a small
group, is the natural way for programmers to live. Founders arriving
at Y Combinator often have the downtrodden air of refugees. Three
months later they're transformed: they have so much more
confidence
that they seem as if they've grown several inches taller.
[4]
Strange as this sounds, they seem both more worried and happier at the same
time. Which is exactly how I'd describe the way lions seem in the
wild.
Watching employees get transformed into founders makes it clear
that the difference between the two is due mostly to environment—and
in particular that the environment in big companies is toxic to
programmers. In the first couple weeks of working on their own
startup they seem to come to life, because finally they're working
the way people are meant to.
Notes
[1]
When I talk about humans being meant or designed to live a
certain way, I mean by evolution.
[2]
It's not only the leaves who suffer. The constraint propagates
up as well as down. So managers are constrained too; instead of
just doing things, they have to act through subordinates.
[3]
Do not finance your startup with credit cards. Financing a
startup with debt is usually a stupid move, and credit card debt
stupidest of all. Credit card debt is a bad idea, period. It is
a trap set by evil companies for the desperate and the foolish.
[4]
The founders we fund used to be younger (initially we encouraged
undergrads to apply), and the first couple times I saw this I used
to wonder if they were actually getting physically taller.
Thanks to Trevor Blackwell, Ross Boucher, Aaron Iba, Abby
Kirigin, Ivan Kirigin, Jessica Livingston, and Robert Morris for
reading drafts of this.
u r a fag!!!!!!!!!!But it's important to realize that more articulate name-calling has just as little weight. A comment like
The author is a self-important dilettante.is really nothing more than a pretentious version of "u r a fag."
Of course he would say that. He's a senator.This wouldn't refute the author's argument, but it may at least be relevant to the case. It's still a very weak form of disagreement, though. If there's something wrong with the senator's argument, you should say what it is; and if there isn't, what difference does it make that he's a senator?
I can't believe the author dismisses intelligent design in such a cavalier fashion.Though better than attacking the author, this is still a weak form of disagreement. It matters much more whether the author is wrong or right than what his tone is. Especially since tone is so hard to judge. Someone who has a chip on their shoulder about some topic might be offended by a tone that to other readers seemed neutral.
I can't believe the author dismisses intelligent design in such a cavalier fashion. Intelligent design is a legitimate scientific theory.Contradiction can sometimes have some weight. Sometimes merely seeing the opposing case stated explicitly is enough to see that it's right. But usually evidence will help.
The author's main point seems to be x. As he says:The quotation you point out as mistaken need not be the actual statement of the author's main point. It's enough to refute something it depends upon.<quotation>But this is wrong for the following reasons...
April 2008
Umair Haque
wrote recently that the reason there aren't more Googles is
that most startups get bought before they can change the world.
Google, despite serious interest from Microsoft and Yahoo—what must have seemed like lucrative interest at the time—didn't sell out. Google might simply have been nothing but Yahoo's or MSN's search box.This has a nice sound to it, but it isn't true. Google's founders were willing to sell early on. They just wanted more than acquirers were willing to pay.
Why isn't it? Because Google had a deeply felt sense of purpose: a conviction to change the world for the better.

Through the reading of popular scientific books I soon reached the conviction that much in the stories of the Bible could not be true. The consequence was a positively fanatic freethinking coupled with the impression that youth is intentionally being deceived by the state through lies: it was a crushing impression. [2]I remember that feeling. By 15 I was convinced the world was corrupt from end to end. That's why movies like The Matrix have such resonance. Every kid grows up in a fake world. In a way it would be easier if the forces behind it were as clearly differentiated as a bunch of evil machines, and one could make a clean break just by taking a pill.
You shouldn't put the blame on one parent, because divorce is never only one person's fault. [8]Really? When a man runs off with his secretary, is it always partly his wife's fault? But I can see why Mayle might have said this. Maybe it's more important for kids to respect their parents than to know the truth about them.
August 2008
Raising money is the second hardest part of starting a startup.
The hardest part is making something people want: most startups
that die, die because they didn't do that. But the second biggest
cause of death is probably the difficulty of raising money.
Fundraising is brutal.
One reason it's so brutal is simply the brutality of markets. People
who've spent most of their lives in schools or big companies may
not have been exposed to that. Professors and bosses usually feel
some sense of responsibility toward you; if you make a valiant
effort and fail, they'll cut you a break. Markets are less forgiving.
Customers don't care how hard you worked, only whether you solved
their problems.
Investors evaluate startups the way customers evaluate products,
not the way bosses evaluate employees. If you're making a valiant
effort and failing, maybe they'll invest in your next startup, but
not this one.
But raising money from investors is harder than selling to
customers, because there are so few of them. There's
nothing like an efficient market. You're unlikely to have more
than 10 who are interested; it's difficult to talk to more. So the
randomness of any one investor's behavior can really affect you.
Problem number 3: investors are very random. All investors, including
us, are by ordinary standards incompetent. We constantly have to
make decisions about things we don't understand, and more often
than not we're wrong.
And yet a lot is at stake. The amounts invested by different types
of investors vary from five thousand dollars to fifty million, but
the amount usually seems large for whatever type of investor it is.
Investment decisions are big decisions.
That combination—making big decisions about things they don't
understand—tends to make investors very skittish. VCs are notorious
for leading founders on. Some of the more unscrupulous do it
deliberately. But even the most well-intentioned investors can
behave in a way that would seem crazy in everyday life. One day
they're full of enthusiasm and seem ready to write you a check on
the spot; the next they won't return your phone calls. They're not
playing games with you. They just can't make up their minds.
[1]
If that weren't bad enough, these wildly fluctuating nodes are all
linked together. Startup investors all know one another, and (though
they hate to admit it) the biggest factor in their opinion of you
is the opinion of other investors.
[2]
Talk about a recipe for
an unstable system. You get the opposite of the damping that the
fear/greed balance usually produces in markets. No one is interested
in a startup that's a "bargain" because everyone else hates it.
So the inefficient market you get because there are so few players
is exacerbated by the fact that they act less than independently.
The result is a system like some kind of primitive, multi-celled
sea creature, where you irritate one extremity and the whole thing
contracts violently.
Y Combinator is working to fix this. We're trying to increase the
number of investors just as we're increasing the number of startups.
We hope that as the number of both increases we'll get something
more like an efficient market. As t approaches infinity, Demo Day
approaches an auction.
Unfortunately, t is still very far from infinity. What does a
startup do now, in the imperfect world we currently inhabit? The
most important thing is not to let fundraising get you down. Startups
live or die on morale. If you let the difficulty of raising money
destroy your morale, it will become a self-fulfilling prophecy.
Bootstrapping (= Consulting)
Some would-be founders may by now be thinking, why deal with investors
at all? If raising money is so painful, why do it?
One answer to that is obvious: because you need money to live on.
It's a fine idea in principle to finance your startup with its own
revenues, but you can't create instant customers. Whatever you
make, you have to sell a certain amount to break even. It will
take time to grow your sales to that point, and it's hard to predict,
till you try, how long it will take.
We could not have bootstrapped Viaweb, for example. We charged
quite a lot for our software—about $140 per user per month—but
it was at least a year before our revenues would have covered even
our paltry costs. We didn't have enough saved to live on for a
year.
If you factor out the "bootstrapped" companies that were actually
funded by their founders through savings or a day job, the remainder
either (a) got really lucky, which is hard to do on demand, or (b)
began life as consulting companies and gradually transformed
themselves into product companies.
Consulting is the only option you can count on. But consulting is
far from free money. It's not as painful as raising money from
investors, perhaps, but the pain is spread over a longer period.
Years, probably. And for many types of startup, that delay could
be fatal. If you're working on something so unusual that no one
else is likely to think of it, you can take your time. Joshua
Schachter gradually built Delicious on the side while working on
Wall Street. He got away with it because no one else realized it
was a good idea. But if you were building something as obviously
necessary as online store software at about the same time as Viaweb,
and you were working on it on the side while spending most of your
time on client work, you were not in a good position.
Bootstrapping sounds great in principle, but this apparently verdant
territory is one from which few startups emerge alive. The mere
fact that bootstrapped startups tend to be famous on that account
should set off alarm bells. If it worked so well, it would be the
norm.
[3]
Bootstrapping may get easier, because starting a company is getting
cheaper. But I don't think we'll ever reach the point where most
startups can do without outside funding. Technology tends to
get dramatically cheaper, but living expenses don't.
The upshot is, you can choose your pain: either the short, sharp
pain of raising money, or the chronic ache of consulting. For a
given total amount of pain, raising money is the better choice,
because new technology is usually more valuable now than later.
But although for most startups raising money will be the lesser
evil, it's still a pretty big evil—so big that it can easily kill
you. Not merely in the obvious sense that if you fail to raise
money you might have to shut the company down, but because the
process of raising money itself can kill you.
To survive it you need a set of techniques mostly
orthogonal to the ones used in convincing investors, just as mountain
climbers need to know survival techniques that are mostly orthogonal
to those used in physically getting up and down mountains.
1. Have low expectations.
The reason raising money destroys so many startups' morale is not
simply that it's hard, but that it's so much harder than they
expected. What kills you is the disappointment. And the lower
your expectations, the harder it is to be disappointed.
Startup founders tend to be optimistic. This can work well in
technology, at least some of the time, but it's the wrong way to
approach raising money. Better to assume investors will always let
you down. Acquirers too, while we're at it. At YC one of our
secondary mantras is "Deals fall through." No matter what deal
you have going on, assume it will fall through. The predictive
power of this simple rule is amazing.
There will be a tendency, as a deal progresses, to start to believe
it will happen, and then to depend on it happening. You must resist
this. Tie yourself to the mast. This is what kills you. Deals
do not have a trajectory like most other human interactions, where
shared plans solidify linearly over time. Deals often fall through
at the last moment. Often the other party doesn't really think
about what they want till the last moment. So you can't use your
everyday intuitions about shared plans as a guide. When it comes
to deals, you have to consciously turn them off and become
pathologically cynical.
This is harder to do than it sounds. It's very flattering when
eminent investors seem interested in funding you. It's easy to
start to believe that raising money will be quick and straightforward.
But it hardly ever is.
2. Keep working on your startup.
It sounds obvious to say that you should keep working on your startup
while raising money. Actually this is hard to do. Most startups
don't manage to.
Raising money has a mysterious capacity to suck up all your attention.
Even if you only have one meeting a day with investors, somehow
that one meeting will burn up your whole day. It costs not just
the time of the actual meeting, but the time getting there and back,
and the time preparing for it beforehand and thinking about it
afterward.
The best way to survive the distraction of meeting with investors
is probably to partition the company: to pick one founder to deal
with investors while the others keep the company going. This works
better when a startup has 3 founders than 2, and better when the
leader of the company is not also the lead developer. In the best
case, the company keeps moving forward at about half speed.
That's the best case, though. More often than not the company comes
to a standstill while raising money. And that is dangerous for so
many reasons. Raising money always takes longer than you expect.
What seems like it's going to be a 2 week interruption turns into
a 4 month interruption. That can be very demoralizing. And worse
still, it can make you less attractive to investors. They want to
invest in companies that are dynamic. A company that hasn't done
anything new in 4 months doesn't seem dynamic, so they start to
lose interest. Investors rarely grasp this, but much of what
they're responding to when they lose interest in a startup is the
damage done by their own indecision.
The solution: put the startup first. Fit meetings with investors
into the spare moments in your development schedule, rather than
doing development in the spare moments between meetings with
investors. If you keep the company moving forward—releasing new
features, increasing traffic, doing deals, getting written
about—those investor meetings are more likely to be productive. Not just
because your startup will seem more alive, but also because it will
be better for your own morale, which is one of the main ways investors
judge you.
3. Be conservative.
As conditions get worse, the optimal strategy becomes more conservative.
When things go well you can take risks; when things are bad you
want to play it safe.
I advise approaching fundraising as if it were always going badly.
The reason is that between your ability to delude yourself and the
wildly unstable nature of the system you're dealing with, things
probably either already are or could easily become much worse than
they seem.
What I tell most startups we fund is that if someone reputable
offers you funding on reasonable terms, take it. There have been
startups that ignored this advice and got away with it—startups
that ignored a good offer in the hope of getting a better one, and
actually did. But in the same position I'd give the same advice
again. Who knows how many bullets were in the gun they were playing
Russian roulette with?
Corollary: if an investor seems interested, don't just let them
sit. You can't assume someone interested in investing will stay
interested. In fact, you can't even tell (they can't even tell)
if they're really interested till you try to convert that interest
into money. So if you have hot prospect, either close them now or
write them off. And unless you already have enough funding, that
reduces to: close them now.
Startups don't win by getting great funding rounds, but by making
great products. So finish raising money and get
back to work.
4. Be flexible.
There are two questions VCs ask that you shouldn't answer: "Who
else are you talking to?" and "How much are you trying to raise?"
VCs don't expect you to answer the first question. They ask it just
in case.
[4]
They do seem to expect an answer to the second. But
I don't think you should just tell them a number. Not as a way to
play games with them, but because you shouldn't have a fixed
amount you need to raise.
The custom of a startup needing a fixed amount of funding is an
obsolete one left over from the days when startups were more
expensive. A company that needed to build a factory or hire 50
people obviously needed to raise a certain minimum amount. But few
technology startups are in that position today.
We advise startups to tell investors there are several different
routes they could take depending on how much they raised. As little
as $50k could pay for food and rent for the founders for a year.
A couple hundred thousand would let them get office space and hire
some smart people they know from school. A couple million would
let them really blow this thing out. The message (and not just the
message, but the fact) should be: we're going to succeed no matter
what. Raising more money just lets us do it faster.
If you're raising an angel round, the size of the round can even
change on the fly. In fact, it's just as well to make the round
small initially, then expand as needed, rather than trying to raise
a large round and risk losing the investors you already have if you
can't raise the full amount. You may even want to do a "rolling
close," where the round has no predetermined size, but instead you
sell stock to investors one at a time as they say yes. That helps
break deadlocks, because you can start as soon as the first one
is ready to buy.
[5]
5. Be independent.
A startup with a couple founders in their early twenties can have
expenses so low that they could be profitable on
as little as $2000 per month. That's negligible as corporate
revenues go, but the effect on your morale and your bargaining
position is anything but. At YC we use the phrase "ramen profitable"
to describe the situation where you're making just enough to pay
your living expenses. Once you cross into ramen profitable,
everything changes. You may still need investment to make it big,
but you don't need it this month.
You can't plan when you start a startup how long
it will take to become profitable. But if you find yourself in a
position where a little more effort expended on sales would carry
you over the threshold of ramen profitable, do it.
Investors like it when you're ramen profitable. It shows you've
thought about making money, instead of just working on amusing
technical problems; it shows you have the discipline to keep your
expenses low; but above all, it means you don't need them.
There is nothing investors like more than a startup that seems like
it's going to succeed even without them. Investors like it when
they can help a startup, but they don't like startups that would
die without that help.
At YC we spend a lot of time trying to predict how the startups we've
funded will do, because we're trying to learn how to pick winners.
We've now watched the trajectories of so many startups that we're
getting better at predicting them. And when we're talking
about startups we think are likely to succeed, what we find ourselves
saying is things like "Oh, those guys can take care of themselves.
They'll be fine." Not "those guys are really smart" or
"those guys are working on a great idea."
[6]
When we predict good outcomes for startups, the qualities
that come up in the supporting arguments are toughness, adaptability,
determination. Which means to the extent we're correct, those are
the qualities you need to win.
Investors know this, at least unconsciously. The reason they like
it when you don't need them is not simply that they like what they
can't have, but because that quality is what makes founders succeed.
Sam Altman
has it. You could parachute him into an island full of
cannibals and come back in 5 years and he'd be the king. If you're
Sam Altman, you don't have to be profitable to convey to investors
that you'll succeed with or without them. (He wasn't, and he did.)
Not everyone has Sam's deal-making ability. I myself don't. But
if you don't, you can let the numbers speak for you.
6. Don't take rejection personally.
Getting rejected by investors can make you start to doubt yourself.
After all, they're more experienced than you. If they think your
startup is lame, aren't they probably right?
Maybe, maybe not. The way to handle rejection is with precision.
You shouldn't simply ignore rejection. It might mean something.
But you shouldn't automatically get demoralized either.
To understand what rejection means, you have to understand first
of all how common it is. Statistically, the average VC is a rejection
machine. David Hornik, a partner at August, told me:
The numbers for me ended up being something like 500 to 800 plans received and read, somewhere between 50 and 100 initial 1 hour meetings held, about 20 companies that I got interested in, about 5 that I got serious about and did a bunch of work, 1 to 2 deals done in a year. So the odds are against you. You may be a great entrepreneur, working on interesting stuff, etc. but it is still incredibly unlikely that you get funded.This is less true with angels, but VCs reject practically everyone. The structure of their business means a partner does at most 2 new investments a year, no matter how many good startups approach him.
October 2008
The economic situation is apparently so grim that some experts fear
we may be in for a stretch as bad as the mid seventies.
When Microsoft and Apple were founded.
As those examples suggest, a recession may not be such a bad time
to start a startup. I'm not claiming it's a particularly good time
either. The truth is more boring: the state of the economy doesn't
matter much either way.
If we've learned one thing from funding so many startups, it's that
they succeed or fail based on the qualities of the founders. The
economy has some effect, certainly, but as a predictor of success
it's rounding error compared to the founders.
Which means that what matters is who you are, not when you do it.
If you're the right sort of person, you'll win even in a bad economy.
And if you're not, a good economy won't save you. Someone who
thinks "I better not start a startup now, because the economy is
so bad" is making the same mistake as the people who thought during
the Bubble "all I have to do is start a startup, and I'll be rich."
So if you want to improve your chances, you should think far more
about who you can recruit as a cofounder than the state of the
economy. And if you're worried about threats to the survival of
your company, don't look for them in the news. Look in the mirror.
But for any given team of founders, would it not pay to wait till
the economy is better before taking the leap? If you're starting
a restaurant, maybe, but not if you're working on technology.
Technology progresses more or less independently of the stock market.
So for any given idea, the payoff for acting fast in a bad economy
will be higher than for waiting. Microsoft's first product was a
Basic interpreter for the Altair. That was exactly what the world
needed in 1975, but if Gates and Allen had decided to wait a few
years, it would have been too late.
Of course, the idea you have now won't be the last you have. There
are always new ideas. But if you have a specific idea you want to
act on, act now.
That doesn't mean you can ignore the economy. Both customers and investors
will be feeling pinched. It's not necessarily a problem if customers
feel pinched: you may even be able to benefit from it, by making
things that save money.
Startups often make things cheaper, so in
that respect they're better positioned to prosper in a recession
than big companies.
Investors are more of a problem. Startups generally need to raise
some amount of external funding, and investors tend to be less
willing to invest in bad times. They shouldn't be. Everyone knows
you're supposed to buy when times are bad and sell when times are
good. But of course what makes investing so counterintuitive is
that in equity markets, good times are defined as everyone thinking
it's time to buy. You have to be a contrarian to be correct, and
by definition only a minority of investors can be.
So just as investors in 1999 were tripping over one another trying
to buy into lousy startups, investors in 2009 will presumably be
reluctant to invest even in good ones.
You'll have to adapt to this. But that's nothing new: startups
always have to adapt to the whims of investors. Ask any founder
in any economy if they'd describe investors as fickle, and watch
the face they make. Last year you had to be prepared to explain
how your startup was viral. Next year you'll have to explain how
it's recession-proof.
(Those are both good things to be. The mistake investors make is
not the criteria they use but that they always tend to focus on one
to the exclusion of the rest.)
Fortunately the way to make a startup recession-proof is to do
exactly what you should do anyway: run it as cheaply as possible.
For years I've been telling founders that the surest route to success
is to be the cockroaches of the corporate world. The immediate
cause of death in a startup is always running out of money. So the
cheaper your company is to operate, the harder it is to kill.
And fortunately it has gotten very cheap to run a startup. A recession
will if anything make it cheaper still.
If nuclear winter really is here, it may be safer to be a cockroach
even than to keep your job. Customers may drop off individually
if they can no longer afford you, but you're not going to lose them
all at once; markets don't "reduce headcount."
What if you quit your job to start a startup that fails, and you
can't find another? That could be a problem if you work in sales or
marketing. In those fields it can take months to find a new
job in a bad economy. But hackers seem to be more liquid. Good
hackers can always get some kind of job. It might not be your dream
job, but you're not going to starve.
Another advantage of bad times is that there's less competition.
Technology trains leave the station at regular intervals. If
everyone else is cowering in a corner, you may have a whole car to
yourself.
You're an investor too. As a founder, you're buying stock with
work: the reason Larry and Sergey are so rich is not so much that
they've done work worth tens of billions of dollars, but that they
were the first investors in Google. And like any investor you
should buy when times are bad.
Were you nodding in agreement, thinking "stupid investors" a few
paragraphs ago when I was talking about how investors are reluctant
to put money into startups in bad markets, even though that's the
time they should rationally be most willing to buy? Well, founders
aren't much better. When times get bad, hackers go to grad school.
And no doubt that will happen this time too. In fact, what makes
the preceding paragraph true is that most readers won't believe
it—at least to the extent of acting on it.
So maybe a recession is a good time to start a startup. It's hard
to say whether advantages like lack of competition outweigh
disadvantages like reluctant investors. But it doesn't matter much
either way. It's the people that matter. And for a given set of
people working on a given technology, the time to act is always
now.

Admission to the right university can make or break an ambitious young South Korean.A parent added:
"In our country, college entrance exams determine 70 to 80 percent of a person's future."It was striking how old fashioned this sounded. And yet when I was in high school it wouldn't have seemed too far off as a description of the US. Which means things must have been changing here.
February 2009
One of the things I always tell startups is a principle I learned
from Paul Buchheit: it's better to make a few people really happy
than to make a lot of people semi-happy. I was saying recently to
a reporter that if I could only tell startups 10 things, this would
be one of them. Then I thought: what would the other 9 be?
When I made the list there turned out to be 13:
1. Pick good cofounders.
Cofounders are for a startup what location is for real estate. You
can change anything about a house except where it is. In a startup
you can change your idea easily, but changing your cofounders is
hard.
[1]
And the success of a startup is almost always a function
of its founders.
2. Launch fast.
The reason to launch fast is not so much that it's critical to get
your product to market early, but that you haven't really started
working on it till you've launched. Launching teaches you what you
should have been building. Till you know that you're wasting your
time. So the main value of whatever you launch with is as a pretext
for engaging users.
3. Let your idea evolve.
This is the second half of launching fast. Launch fast and iterate.
It's a big mistake to treat a startup as if it were merely a matter
of implementing some brilliant initial idea. As in an essay, most
of the ideas appear in the implementing.
4. Understand your users.
You can envision the wealth created by a startup as a rectangle,
where one side is the number of users and the other is how much you
improve their lives.
[2]
The second dimension is the one you have
most control over. And indeed, the growth in the first will be
driven by how well you do in the second. As in science, the hard
part is not answering questions but asking them: the hard part is
seeing something new that users lack. The better you understand
them the better the odds of doing that. That's why so many successful
startups make something the founders needed.
5. Better to make a few users love you than a lot ambivalent.
Ideally you want to make large numbers of users love you, but you
can't expect to hit that right away. Initially you have to choose
between satisfying all the needs of a subset of potential users,
or satisfying a subset of the needs of all potential users. Take
the first. It's easier to expand userwise than satisfactionwise.
And perhaps more importantly, it's harder to lie to yourself. If
you think you're 85% of the way to a great product, how do you know
it's not 70%? Or 10%? Whereas it's easy to know how many users
you have.
6. Offer surprisingly good customer service.
Customers are used to being maltreated. Most of the companies they
deal with are quasi-monopolies that get away with atrocious customer
service. Your own ideas about what's possible have been unconsciously
lowered by such experiences. Try making your customer service not
merely good, but
surprisingly good. Go out of your way to make
people happy. They'll be overwhelmed; you'll see. In the earliest
stages of a startup, it pays to offer customer service on a level
that wouldn't scale, because it's a way of learning about your
users.
7. You make what you measure.
I learned this one from Joe Kraus.
[3]
Merely measuring something
has an uncanny tendency to improve it. If you want to make your
user numbers go up, put a big piece of paper on your wall and every
day plot the number of users. You'll be delighted when it goes up
and disappointed when it goes down. Pretty soon you'll start
noticing what makes the number go up, and you'll start to do more
of that. Corollary: be careful what you measure.
8. Spend little.
I can't emphasize enough how important it is for a startup to be cheap.
Most startups fail before they make something people want, and the
most common form of failure is running out of money. So being cheap
is (almost) interchangeable with iterating rapidly.
[4]
But it's
more than that. A culture of cheapness keeps companies young in
something like the way exercise keeps people young.
9. Get ramen profitable.
"Ramen profitable" means a startup makes just enough to pay the
founders' living expenses. It's not rapid prototyping for business
models (though it can be), but more a way of hacking the investment
process. Once you cross over into ramen profitable, it completely
changes your relationship with investors. It's also great for
morale.
10. Avoid distractions.
Nothing kills startups like distractions. The worst type are those
that pay money: day jobs, consulting, profitable side-projects.
The startup may have more long-term potential, but you'll always
interrupt working on it to answer calls from people paying you now.
Paradoxically, fundraising is this type of distraction, so try to
minimize that too.
11. Don't get demoralized.
Though the immediate cause of death in a startup tends to be running
out of money, the underlying cause is usually lack of focus. Either
the company is run by stupid people (which can't be fixed with
advice) or the people are smart but got demoralized. Starting a
startup is a huge moral weight. Understand this and make a conscious
effort not to be ground down by it, just as you'd be careful to
bend at the knees when picking up a heavy box.
12. Don't give up.
Even if you get demoralized, don't give up. You can get surprisingly
far by just not giving up. This isn't true in all fields. There
are a lot of people who couldn't become good mathematicians no
matter how long they persisted. But startups aren't like that.
Sheer effort is usually enough, so long as you keep morphing your
idea.
13. Deals fall through.
One of the most useful skills we learned from Viaweb was not getting
our hopes up. We probably had 20 deals of various types fall
through. After the first 10 or so we learned to treat deals as
background processes that we should ignore till they terminated.
It's very dangerous to morale to start to depend on deals closing,
not just because they so often don't, but because it makes them
less likely to.
Having gotten it down to 13 sentences, I asked myself which I'd
choose if I could only keep one.
Understand your users. That's the key. The essential task in a
startup is to create wealth; the dimension of wealth you have most
control over is how much you improve users' lives; and the hardest
part of that is knowing what to make for them. Once you know what
to make, it's mere effort to make it, and most decent hackers are
capable of that.
Understanding your users is part of half the principles in this
list. That's the reason to launch early, to understand your users.
Evolving your idea is the embodiment of understanding your users.
Understanding your users well will tend to push you toward making
something that makes a few people deeply happy. The most important
reason for having surprisingly good customer service is that it
helps you understand your users. And understanding your users will
even ensure your morale, because when everything else is collapsing
around you, having just ten users who love you will keep you going.
Notes
[1]
Strictly speaking it's impossible without a time machine.
[2]
In practice it's more like a ragged comb.
[3]
Joe thinks one of the founders of Hewlett Packard said it first,
but he doesn't remember which.
[4]
They'd be interchangeable if markets stood still. Since they
don't, working twice as fast is better than having twice as much
time.
The key to performance is elegance, not battalions of special cases.and look for the bottleneck I can remove with least code. So far I've been able to keep up, in the sense that performance has remained consistently mediocre despite 14x growth. I don't know what I'll do next, but I'll probably think of something.
Comment on this essay.
Comment on this essay.
March 2009
A couple days ago I finally got being a good startup founder down
to two words: relentlessly resourceful.
Till then the best I'd managed was to get the opposite quality down
to one: hapless. Most dictionaries say hapless means unlucky. But
the dictionaries are not doing a very good job. A team that outplays
its opponents but loses because of a bad decision by the referee
could be called unlucky, but not hapless. Hapless implies passivity.
To be hapless is to be battered by circumstances — to let the world
have its way with you, instead of having your way with the world.
[1]
Unfortunately there's no antonym of hapless, which makes it difficult
to tell founders what to aim for. "Don't be hapless" is not much
of a rallying cry.
It's not hard to express the quality we're looking for in metaphors.
The best is probably a running back. A good running back is not
merely determined, but flexible as well. They want to get downfield,
but they adapt their plans on the fly.
Unfortunately this is just a metaphor, and not a useful one to most
people outside the US. "Be like a running back" is no better than
"Don't be hapless."
But finally I've figured out how to express this quality directly.
I was writing a talk for
investors, and I had to explain what to
look for in founders. What would someone who was the opposite of
hapless be like? They'd be relentlessly resourceful. Not merely
relentless. That's not enough to make things go your way except
in a few mostly uninteresting domains. In any interesting domain,
the difficulties will be novel. Which means you can't simply plow
through them, because you don't know initially how hard they are;
you don't know whether you're about to plow through a block of foam
or granite. So you have to be resourceful. You have to keep
trying new things.
Be relentlessly resourceful.
That sounds right, but is it simply a description
of how to be successful in general? I don't think so. This isn't
the recipe for success in writing or painting, for example. In
that kind of work the recipe is more to be actively curious.
Resourceful implies the obstacles are external, which they generally
are in startups. But in writing and painting they're mostly internal;
the obstacle is your own obtuseness.
[2]
There probably are other fields where "relentlessly resourceful"
is the recipe for success. But though other fields may share it,
I think this is the best short description we'll find of what makes
a good startup founder. I doubt it could be made more precise.
Now that we know what we're looking for, that leads to other
questions. For example, can this quality be taught? After four
years of trying to teach it to people, I'd say that yes, surprisingly
often it can. Not to everyone, but to many people.
[3]
Some
people are just constitutionally passive, but others have a latent
ability to be relentlessly resourceful that only needs to be brought
out.
This is particularly true of young people who have till now always
been under the thumb of some kind of authority. Being relentlessly
resourceful is definitely not the recipe for success in big companies,
or in most schools. I don't even want to think what the recipe is
in big companies, but it is certainly longer and messier, involving
some combination of resourcefulness, obedience, and building
alliances.
Identifying this quality also brings us closer to answering a
question people often wonder about: how many startups there could
be. There is not, as some people seem to think, any economic upper
bound on this number. There's no reason to believe there is any
limit on the amount of newly created wealth consumers can absorb,
any more than there is a limit on the number of theorems that can
be proven. So probably the limiting factor on the number of startups
is the pool of potential founders. Some people would make good
founders, and others wouldn't. And now that we can say what makes
a good founder, we know how to put an upper bound on the size of
the pool.
This test is also useful to individuals. If you want to know whether
you're the right sort of person to start a startup, ask yourself
whether you're relentlessly resourceful. And if you want to know
whether to recruit someone as a cofounder, ask if they are.
You can even use it tactically. If I were running a startup, this
would be the phrase I'd tape to the mirror. "Make something people
want" is the destination, but "Be relentlessly resourceful" is how
you get there.
Notes
[1]
I think the reason the dictionaries are wrong is that the
meaning of the word has shifted. No one writing a dictionary from
scratch today would say that hapless meant unlucky. But a couple
hundred years ago they might have. People were more at the mercy
of circumstances in the past, and as a result a lot of the words
we use for good and bad outcomes have origins in words about luck.
When I was living in Italy, I was once trying to tell someone
that I hadn't had much success in doing something, but I couldn't
think of the Italian word for success. I spent some time trying
to describe the word I meant. Finally she said "Ah! Fortuna!"
[2]
There are aspects of startups where the recipe is to be
actively curious. There can be times when what you're doing is
almost pure discovery. Unfortunately these times are a small
proportion of the whole. On the other hand, they are in research
too.
[3]
I'd almost say to most people, but I realize (a) I have no
idea what most people are like, and (b) I'm pathologically optimistic
about people's ability to change.
Thanks to Trevor Blackwell and Jessica Livingston for reading drafts
of this.
July 2009
One reason programmers dislike meetings so much is that they're on
a different type of schedule from other people. Meetings cost them
more.
There are two types of schedule, which I'll call the manager's
schedule and the maker's schedule. The manager's schedule is for
bosses. It's embodied in the traditional appointment book, with
each day cut into one hour intervals. You can block off several
hours for a single task if you need to, but by default you change
what you're doing every hour.
When you use time that way, it's merely a practical problem to meet
with someone. Find an open slot in your schedule, book them, and
you're done.
Most powerful people are on the manager's schedule. It's the
schedule of command. But there's another way of using time that's
common among people who make things, like programmers and writers.
They generally prefer to use time in units of half a day at least.
You can't write or program well in units of an hour. That's barely
enough time to get started.
When you're operating on the maker's schedule, meetings are a
disaster. A single meeting can blow a whole afternoon, by breaking
it into two pieces each too small to do anything hard in. Plus you
have to remember to go to the meeting. That's no problem for someone
on the manager's schedule. There's always something coming on the
next hour; the only question is what. But when someone on the
maker's schedule has a meeting, they have to think about it.
For someone on the maker's schedule, having a meeting is like
throwing an exception. It doesn't merely cause you to switch from
one task to another; it changes the mode in which you work.
I find one meeting can sometimes affect a whole day. A meeting
commonly blows at least half a day, by breaking up a morning or
afternoon. But in addition there's sometimes a cascading effect.
If I know the afternoon is going to be broken up, I'm slightly less
likely to start something ambitious in the morning. I know this
may sound oversensitive, but if you're a maker, think of your own
case. Don't your spirits rise at the thought of having an entire
day free to work, with no appointments at all? Well, that means
your spirits are correspondingly depressed when you don't. And
ambitious projects are by definition close to the limits of your
capacity. A small decrease in morale is enough to kill them off.
Each type of schedule works fine by itself. Problems arise when
they meet. Since most powerful people operate on the manager's
schedule, they're in a position to make everyone resonate at their
frequency if they want to. But the smarter ones restrain themselves,
if they know that some of the people working for them need long
chunks of time to work in.
Our case is an unusual one. Nearly all investors, including all
VCs I know, operate on the manager's schedule. But
Y Combinator
runs on the maker's schedule. Rtm and Trevor and I do because we
always have, and Jessica does too, mostly, because she's gotten
into sync with us.
I wouldn't be surprised if there start to be more companies like
us. I suspect founders may increasingly be able to resist, or at
least postpone, turning into managers, just as a few decades ago
they started to be able to resist switching from jeans
to suits.
How do we manage to advise so many startups on the maker's schedule?
By using the classic device for simulating the manager's schedule
within the maker's: office hours. Several times a week I set aside
a chunk of time to meet founders we've funded. These chunks of
time are at the end of my working day, and I wrote a signup program
that ensures all the appointments within a given set of office hours
are clustered at the end. Because they come at the end of my day
these meetings are never an interruption. (Unless their working
day ends at the same time as mine, the meeting presumably interrupts
theirs, but since they made the appointment it must be worth it to
them.) During busy periods, office hours sometimes get long enough
that they compress the day, but they never interrupt it.
When we were working on our own startup, back in the 90s, I evolved
another trick for partitioning the day. I used to program from
dinner till about 3 am every day, because at night no one could
interrupt me. Then I'd sleep till about 11 am, and come in and
work until dinner on what I called "business stuff." I never thought
of it in these terms, but in effect I had two workdays each day,
one on the manager's schedule and one on the maker's.
When you're operating on the manager's schedule you can do something
you'd never want to do on the maker's: you can have speculative
meetings. You can meet someone just to get to know one another.
If you have an empty slot in your schedule, why not? Maybe it will
turn out you can help one another in some way.
Business people in Silicon Valley (and the whole world, for that
matter) have speculative meetings all the time. They're effectively
free if you're on the manager's schedule. They're so common that
there's distinctive language for proposing them: saying that you
want to "grab coffee," for example.
Speculative meetings are terribly costly if you're on the maker's
schedule, though. Which puts us in something of a bind. Everyone
assumes that, like other investors, we run on the manager's schedule.
So they introduce us to someone they think we ought to meet, or
send us an email proposing we grab coffee. At this point we have
two options, neither of them good: we can meet with them, and lose
half a day's work; or we can try to avoid meeting them, and probably
offend them.
Till recently we weren't clear in our own minds about the source
of the problem. We just took it for granted that we had to either
blow our schedules or offend people. But now that I've realized
what's going on, perhaps there's a third option: to write something
explaining the two types of schedule. Maybe eventually, if the
conflict between the manager's schedule and the maker's schedule
starts to be more widely understood, it will become less of a
problem.
Those of us on the maker's schedule are willing to compromise. We
know we have to have some number of meetings. All we ask from those
on the manager's schedule is that they understand the cost.
Thanks to Sam Altman, Trevor Blackwell, Paul Buchheit, Jessica Livingston,
and Robert Morris for reading drafts of this.
Related:
July 2009
Now that the term "ramen profitable" has become widespread, I ought
to explain precisely what the idea entails.
Ramen profitable means a startup makes just enough to pay the
founders' living expenses. This is a different form of profitability
than startups have traditionally aimed for. Traditional profitability
means a big bet is finally paying off, whereas the main importance
of ramen profitability is that it buys you time.
[1]
In the past, a startup would usually become profitable only
after raising and spending quite a lot of money. A company making
computer hardware might not become profitable for 5 years, during
which they spent $50 million. But when they did
they might have revenues of $50 million a year. This kind of
profitability means the startup has succeeded.
Ramen profitability is the other extreme: a startup that becomes
profitable after 2 months, even though its revenues are only $3000
a month, because the only employees are a couple 25 year old founders
who can live on practically nothing. Revenues of $3000 a month do
not mean the company has succeeded.
But it does share something with the one
that's profitable in the traditional way: they don't need to raise
money to survive.
Ramen profitability is an unfamiliar idea to most people because
it only recently became feasible. It's still not feasible for a
lot of startups; it would not be for most biotech startups, for
example; but it is for many software startups because they're now
so cheap. For many, the only real cost is the founders'
living expenses.
The main significance of this type of profitability is that you're
no longer at the mercy of investors. If you're still losing money,
then eventually you'll either have to raise more
or shut down. Once you're
ramen profitable this painful choice goes away.
You can still raise money, but you don't have to do it now.
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September 2009
Like all investors, we spend a lot of time trying to learn how to
predict which startups will succeed. We probably spend more time
thinking about it than most, because we invest the earliest.
Prediction is usually all we have to rely on.
We learned quickly that the most important predictor of success is
determination. At first we thought it might be intelligence.
Everyone likes to believe that's what makes startups succeed. It
makes a better story that a company won because its founders were
so smart. The PR people and reporters who spread such stories
probably believe them themselves. But while it certainly helps to
be smart, it's not the deciding factor. There are plenty of people
as smart as Bill Gates who achieve nothing.
In most domains, talent is overrated compared to determination—partly
because it makes a better story, partly because it gives onlookers
an excuse for being lazy, and partly because after a while determination
starts to look like talent.
I can't think of any field in which determination is overrated, but
the relative importance of determination and talent probably do
vary somewhat. Talent probably matters more in types of work that
are purer, in the sense that one is solving mostly a single type
of problem instead of many different types. I suspect determination
would not take you as far in math as it would in, say, organized
crime.
I don't mean to suggest by this comparison that types of work that
depend more on talent are always more admirable. Most people would
agree it's more admirable to be good at math than memorizing long
strings of digits, even though the latter depends more on natural
ability.
Perhaps one reason people believe startup founders win by being
smarter is that intelligence does matter more in technology startups
than it used to in earlier types of companies. You probably do
need to be a bit smarter to dominate Internet search than you had
to be to dominate railroads or hotels or newspapers. And that's
probably an ongoing trend. But even in the highest of high tech
industries, success still depends more on determination than brains.
If determination is so important, can we isolate its components?
Are some more important than others? Are there some you can
cultivate?
The simplest form of determination is sheer willfulness. When you
want something, you must have it, no matter what.
A good deal of willfulness must be inborn, because it's common to
see families where one sibling has much more of it than another.
Circumstances can alter it, but at the high end of the scale, nature
seems to be more important than nurture. Bad circumstances can
break the spirit of a strong-willed person, but I don't think there's
much you can do to make a weak-willed person stronger-willed.
Being strong-willed is not enough, however. You also have to be
hard on yourself. Someone who was strong-willed but self-indulgent
would not be called determined. Determination implies your willfulness
is balanced by discipline.
That word balance is a significant one. The more willful you are,
the more disciplined you have to be. The stronger your will, the
less anyone will be able to argue with you except yourself. And
someone has to argue with you, because everyone has base impulses,
and if you have more will than discipline you'll just give into
them and end up on a local maximum like drug addiction.
We can imagine will and discipline as two fingers squeezing a
slippery melon seed. The harder they squeeze, the further the seed
flies, but they must both squeeze equally or the seed spins off
sideways.
If this is true it has interesting implications, because discipline
can be cultivated, and in fact does tend to vary quite a lot in the
course of an individual's life. If determination is effectively
the product of will and discipline, then you can become more
determined by being more disciplined.
[1]
Another consequence of the melon seed model is that the more willful
you are, the more dangerous it is to be undisciplined. There seem
to be plenty of examples to confirm that. In some very energetic
people's lives you see something like wing flutter, where they
alternate between doing great work and doing absolutely nothing.
Externally this would look a lot like bipolar disorder.
The melon seed model is inaccurate in at least one respect, however:
it's static. In fact the dangers of indiscipline increase with
temptation. Which means, interestingly, that determination tends
to erode itself. If you're sufficiently determined to achieve great
things, this will probably increase the number of temptations around
you. Unless you become proportionally more disciplined, willfulness
will then get the upper hand, and your achievement will revert to
the mean.
That's why Shakespeare's Caesar thought thin men so dangerous. They weren't
tempted by the minor perquisites of power.
The melon seed model implies it's possible to be too disciplined.
Is it? I think there probably are people whose willfulness is
crushed down by excessive discipline, and who would achieve more
if they weren't so hard on themselves. One reason the young sometimes
succeed where the old fail is that they don't realize how incompetent
they are. This lets them do a kind of deficit spending. When they
first start working on something, they overrate their achievements.
But that gives them confidence to keep working, and their performance
improves. Whereas someone clearer-eyed would see their initial
incompetence for what it was, and perhaps be discouraged from
continuing.
There's one other major component of determination: ambition. If
willfulness and discipline are what get you to your destination,
ambition is how you choose it.
I don't know if it's exactly right to say that ambition is a component
of determination, but they're not entirely orthogonal. It would
seem a misnomer if someone said they were very determined to do
something trivially easy.
And fortunately ambition seems to be quite malleable; there's a lot
you can do to increase it. Most people don't know how ambitious
to be, especially when they're young. They don't know what's hard,
or what they're capable of. And this problem is exacerbated by
having few peers. Ambitious people are rare, so if everyone is
mixed together randomly, as they tend to be early in people's lives,
then the ambitious ones won't have many ambitious peers. When you
take people like this and put them together with other ambitious
people, they bloom like dying plants given water. Probably most
ambitious people are starved for the sort of encouragement they'd
get from ambitious peers, whatever their age.
[2]
Achievements also tend to increase your ambition. With each step
you gain confidence to stretch further next time.
So here in sum is how determination seems to work: it consists of
willfulness balanced with discipline, aimed by ambition. And
fortunately at least two of these three qualities can be cultivated.
You may be able to increase your strength of will somewhat; you can
definitely learn self-discipline; and almost everyone is practically
malnourished when it comes to ambition.
I feel like I understand determination a bit better now. But only
a bit: willfulness, discipline, and ambition are all concepts almost
as complicated as determination.
[3]
Note too that determination and talent are not the whole story.
There's a third factor in achievement: how much you like the work.
If you really love working on something,
you don't need determination to drive you; it's what you'd do anyway.
But most types of work have aspects one doesn't like, because most
types of work consist of doing things for other people, and it's
very unlikely that the tasks imposed by their needs will happen to
align exactly with what you want to do.
Indeed, if you want to create the most wealth,
the way to do it is to focus more on their needs than your interests,
and make up the difference with determination.
Notes
[1]
Loosely speaking. What I'm claiming with the melon seed model
is more like determination is proportionate to wd^m - k|w - d|^n,
where w is will and d discipline.
[2]
Which means one of the best ways to help a society generally
is to create events and institutions that bring ambitious
people together. It's like pulling the control rods out of a
reactor: the energy they emit encourages other ambitious people,
instead of being absorbed by the normal people they're usually
surrounded with.
Conversely, it's probably a mistake to do as some European countries
have done and try to ensure none of your universities is significantly
better than the others.
[3]
For example, willfulness clearly has two subcomponents,
stubbornness and energy. The first alone yields someone who's
stubbornly inert. The second alone yields someone flighty.
As willful people get older or otherwise lose their energy, they
tend to become merely stubborn.
Thanks to Sam Altman, Jessica Livingston, and Robert Morris
for reading drafts of this.
People who think the labor movement was the creation of heroic union organizers have a problem to explain: why are unions shrinking now? The best they can do is fall back on the default explanation of people living in fallen civilizations. Our ancestors were giants. The workers of the early twentieth century must have had a moral courage that's lacking today.Now here's the same paragraph rewritten to please instead of offending them:
Early union organizers made heroic sacrifices to improve conditions for workers. But though labor unions are shrinking now, it's not because present union leaders are any less courageous. An employer couldn't get away with hiring thugs to beat up union leaders today, but if they did, I see no reason to believe today's union leaders would shrink from the challenge. So I think it would be a mistake to attribute the decline of unions to some kind of decline in the people who run them. Early union leaders were heroic, certainly, but we should not suppose that if unions have declined, it's because present union leaders are somehow inferior. The cause must be external. [1]It makes the same point: that it can't have been the personal qualities of early union organizers that made unions successful, but must have been some external factor, or otherwise present-day union leaders would have to be inferior people. But written this way it seems like a defense of present-day union organizers rather than an attack on early ones. That makes it more persuasive to people who like unions, because it seems sympathetic to their cause.
October 2009
(This essay is derived from a talk at the 2009 Startup School.)
I wasn't sure what to talk about at Startup School, so I decided
to ask the founders of the startups we'd funded. What hadn't I
written about yet?
I'm in the unusual position of being able to test the essays I write
about startups. I hope the ones on other topics are right, but I
have no way to test them. The ones on startups get tested by about
70 people every 6 months.
So I sent all the founders an email asking what surprised them about
starting a startup. This amounts to asking what I got wrong, because
if I'd explained things well enough, nothing should have surprised
them.
I'm proud to report I got one response saying:
What surprised me the most is that everything was actually fairly predictable!The bad news is that I got over 100 other responses listing the surprises they encountered.
You haven't seen someone's true colors unless you've worked with them on a startup.The reason character is so important is that it's tested more severely than in most other situations. One founder said explicitly that the relationship between founders was more important than ability:
I would rather cofound a startup with a friend than a stranger with higher output. Startups are so hard and emotional that the bonds and emotional and social support that come with friendship outweigh the extra output lost.We learned this lesson a long time ago. If you look at the YC application, there are more questions about the commitment and relationship of the founders than their ability.
One thing that surprised me is how the relationship of startup founders goes from a friendship to a marriage. My relationship with my cofounder went from just being friends to seeing each other all the time, fretting over the finances and cleaning up shit. And the startup was our baby. I summed it up once like this: "It's like we're married, but we're not fucking."Several people used that word "married." It's a far more intense relationship than you usually see between coworkers—partly because the stresses are so much greater, and partly because at first the founders are the whole company. So this relationship has to be built of top quality materials and carefully maintained. It's the basis of everything.
I didn't realize I would spend almost every waking moment either working or thinking about our startup. You enter a whole different way of life when it's your company vs. working for someone else's company.It's exacerbated by the fast pace of startups, which makes it seem like time slows down:
I think the thing that's been most surprising to me is how one's perspective on time shifts. Working on our startup, I remember time seeming to stretch out, so that a month was a huge interval.In the best case, total immersion can be exciting:
It's surprising how much you become consumed by your startup, in that you think about it day and night, but never once does it feel like "work."Though I have to say, that quote is from someone we funded this summer. In a couple years he may not sound so chipper.
The emotional ups and downs were the biggest surprise for me. One day, we'd think of ourselves as the next Google and dream of buying islands; the next, we'd be pondering how to let our loved ones know of our utter failure; and on and on.The hard part, obviously, is the lows. For a lot of founders that was the big surprise:
How hard it is to keep everyone motivated during rough days or weeks, i.e. how low the lows can be.After a while, if you don't have significant success to cheer you up, it wears you out:
Your most basic advice to founders is "just don't die," but the energy to keep a company going in lieu of unburdening success isn't free; it is siphoned from the founders themselves.There's a limit to how much you can take. If you get to the point where you can't keep working anymore, it's not the end of the world. Plenty of famous founders have had some failures along the way.
I think you've left out just how fun it is to do a startup. I am more fulfilled in my work than pretty much any of my friends who did not start companies.What they like most is the freedom:
I'm surprised by how much better it feels to be working on something that is challenging and creative, something I believe in, as opposed to the hired-gun stuff I was doing before. I knew it would feel better; what's surprising is how much better.Frankly, though, if I've misled people here, I'm not eager to fix that. I'd rather have everyone think starting a startup is grim and hard than have founders go into it expecting it to be fun, and a few months later saying "This is supposed to be fun? Are you kidding?"
Everyone said how determined and resilient you must be, but going through it made me realize that the determination required was still understated.and also by the degree to which persistence alone was able to dissolve obstacles:
If you are persistent, even problems that seem out of your control (i.e. immigration) seem to work themselves out.Several founders mentioned specifically how much more important persistence was than intelligence.
I've been surprised again and again by just how much more important persistence is than raw intelligence.This applies not just to intelligence but to ability in general, and that's why so many people said character was more important in choosing cofounders.
I'm continually surprised by how long everything can take. Assuming your product doesn't experience the explosive growth that very few products do, everything from development to dealmaking (especially dealmaking) seems to take 2-3x longer than I always imagine.One reason founders are surprised is that because they work fast, they expect everyone else to. There's a shocking amount of shear stress at every point where a startup touches a more bureaucratic organization, like a big company or a VC fund. That's why fundraising and the enterprise market kill and maim so many startups. [2]
The top thing I didn't understand before going into it is that persistence is the name of the game. For the vast majority of startups that become successful, it's going to be a really long journey, at least 3 years and probably 5+.There is a positive side to thinking longer-term. It's not just that you have to resign yourself to everything taking longer than it should. If you work patiently it's less stressful, and you can do better work:
Because we're relaxed, it's so much easier to have fun doing what we do. Gone is the awkward nervous energy fueled by the desperate need to not fail guiding our actions. We can concentrate on doing what's best for our company, product, employees and customers.That's why things get so much better when you hit ramen profitability. You can shift into a different mode of working.
It's much more of a grind than glamorous. A timeslice selected at random would more likely find me tracking down a weird DLL loading bug on Swedish Windows, or tracking down a bug in the financial model Excel spreadsheet the night before a board meeting, rather than having brilliant flashes of strategic insight.Most hacker-founders would like to spend all their time programming. You won't get to, unless you fail. Which can be transformed into: If you spend all your time programming, you will fail.
I learnt never to bet on any one feature or deal or anything to bring you success. It is never a single thing. Everything is just incremental and you just have to keep doing lots of those things until you strike something.Even in the rare cases where a clever hack makes your fortune, you probably won't know till later:
There is no such thing as a killer feature. Or at least you won't know what it is.So the best strategy is to try lots of different things. The reason not to put all your eggs in one basket is not the usual one, which applies even when you know which basket is best. In a startup you don't even know that.
Build the absolute smallest thing that can be considered a complete application and ship it.Why do people take too long on the first version? Pride, mostly. They hate to release something that could be better. They worry what people will say about them. But you have to overcome this:
Doing something "simple" at first glance does not mean you aren't doing something meaningful, defensible, or valuable.Don't worry what people will say. If your first version is so impressive that trolls don't make fun of it, you waited too long to launch. [3]
Now, when coding, I try to think "How can I write this such that if people saw my code, they'd be amazed at how little there is and how little it does?"Over-engineering is poison. It's not like doing extra work for extra credit. It's more like telling a lie that you then have to remember so you don't contradict it.
I learned to think about the initial stages of a startup as a giant experiment. All products should be considered experiments, and those that have a market show promising results extremely quickly.Once you start talking to users, I guarantee you'll be surprised by what they tell you.
When you let customers tell you what they're after, they will often reveal amazing details about what they find valuable as well what they're willing to pay for.The surprise is generally positive as well as negative. They won't like what you've built, but there will be other things they would like that would be trivially easy to implement. It's not till you start the conversation by launching the wrong thing that they can express (or perhaps even realize) what they're looking for.
Normally if you complain about something being hard, the general advice is to work harder. With a startup, I think you should find a problem that's easy for you to solve. Optimizing in solution-space is familiar and straightforward, but you can make enormous gains playing around in problem-space.Whereas mere determination, without flexibility, is a greedy algorithm that may get you nothing more than a mediocre local maximum:
When someone is determined, there's still a danger that they'll follow a long, hard path that ultimately leads nowhere.You want to push forward, but at the same time twist and turn to find the most promising path. One founder put it very succinctly:
Fast iteration is the key to success.One reason this advice is so hard to follow is that people don't realize how hard it is to judge startup ideas, particularly their own. Experienced founders learn to keep an open mind:
Now I don't laugh at ideas anymore, because I realized how terrible I was at knowing if they were good or not.You can never tell what will work. You just have to do whatever seems best at each point. We do this with YC itself. We still don't know if it will work, but it seems like a decent hypothesis.
Companies that seemed like competitors and threats at first glance usually never were when you really looked at it. Even if they were operating in the same area, they had a different goal.One reason people overreact to competitors is that they overvalue ideas. If ideas really were the key, a competitor with the same idea would be a real threat. But it's usually execution that matters:
All the scares induced by seeing a new competitor pop up are forgotten weeks later. It always comes down to your own product and approach to the market.This is generally true even if competitors get lots of attention.
Competitors riding on lots of good blogger perception aren't really the winners and can disappear from the map quickly. You need consumers after all.Hype doesn't make satisfied users, at least not for something as complicated as technology.
I had no idea how much time and effort needed to go into attaining users.This is a complicated topic. When you can't get users, it's hard to say whether the problem is lack of exposure, or whether the product's simply bad. Even good products can be blocked by switching or integration costs:
Getting people to use a new service is incredibly difficult. This is especially true for a service that other companies can use, because it requires their developers to do work. If you're small, they don't think it is urgent. [4]The sharpest criticism of YC came from a founder who said we didn't focus enough on customer acquisition:
YC preaches "make something people want" as an engineering task, a never ending stream of feature after feature until enough people are happy and the application takes off. There's very little focus on the cost of customer acquisition.This may be true; this may be something we need to fix, especially for applications like games. If you make something where the challenges are mostly technical, you can rely on word of mouth, like Google did. One founder was surprised by how well that worked for him:
There is an irrational fear that no one will buy your product. But if you work hard and incrementally make it better, there is no need to worry.But with other types of startups you may win less by features and more by deals and marketing.
In retrospect, it would have been much better if we had operated under the assumption that we would never get any additional outside investment. That would have focused us on finding revenue streams early.My advice is generally pessimistic. Assume you won't get money, and if someone does offer you any, assume you'll never get any more.
If someone offers you money, take it. You say it a lot, but I think it needs even more emphasizing. We had the opportunity to raise a lot more money than we did last year and I wish we had.Why do founders ignore me? Mostly because they're optimistic by nature. The mistake is to be optimistic about things you can't control. By all means be optimistic about your ability to make something great. But you're asking for trouble if you're optimistic about big companies or investors.
They don't even know about the stuff they've invested in. I met some investors that had invested in a hardware device and when I asked them to demo the device they had difficulty switching it on.Angels are a bit better than VCs, because they usually have startup experience themselves:
VC investors don't know half the time what they are talking about and are years behind in their thinking. A few were great, but 95% of the investors we dealt with were unprofessional, didn't seem to be very good at business or have any kind of creative vision. Angels were generally much better to talk to.Why are founders surprised that VCs are clueless? I think it's because they seem so formidable.
The degree to which feigning certitude impressed investors.This is the thing that has surprised me most about YC founders' experiences. This summer we invited some of the alumni to talk to the new startups about fundraising, and pretty much 100% of their advice was about investor psychology. I thought I was cynical about VCs, but the founders were much more cynical.
A lot of what startup founders do is just posturing. It works.VCs themselves have no idea of the extent to which the startups they like are the ones that are best at selling themselves to VCs. [6] It's exactly the same phenomenon we saw a step earlier. VCs get money by seeming confident to LPs, and founders get money by seeming confident to VCs.
I didn't realize how much of a role luck plays and how much is outside of our control.If you think about famous startups, it's pretty clear how big a role luck plays. Where would Microsoft be if IBM insisted on an exclusive license for DOS?
When we started our startup, I had bought the hype of the startup founder dream: that this is a game of skill. It is, in some ways. Having skill is valuable. So is being determined as all hell. But being lucky is the critical ingredient.Actually the best model would be to say that the outcome is the product of skill, determination, and luck. No matter how much skill and determination you have, if you roll a zero for luck, the outcome is zero.
The immense value of the peer group of YC companies, and facing similar obstacles at similar times.which shouldn't be that surprising, because that's why it's structured that way. Others were surprised at the value of the startup community in the larger sense:
How advantageous it is to live in Silicon Valley, where you can't help but hear all the cutting-edge tech and startup news, and run into useful people constantly.The specific thing that surprised them most was the general spirit of benevolence:
One of the most surprising things I saw was the willingness of people to help us. Even people who had nothing to gain went out of their way to help our startup succeed.and particularly how it extended all the way to the top:
The surprise for me was how accessible important and interesting people are. It's amazing how easily you can reach out to people and get immediate feedback.This is one of the reasons I like being part of this world. Creating wealth is not a zero-sum game, so you don't have to stab people in the back to win.
In social settings, I found that I got a lot more respect when I said, "I worked on Microsoft Office" instead of "I work at a small startup you've never heard of called x."Partly this is because the rest of the world just doesn't get startups, and partly it's yet another consequence of the fact that most good startup ideas seem bad:
If you pitch your idea to a random person, 95% of the time you'll find the person instinctively thinks the idea will be a flop and you're wasting your time (although they probably won't say this directly).Unfortunately this extends even to dating:
It surprised me that being a startup founder does not get you more admiration from women.I did know about that, but I'd forgotten.
Your job description as technical founder/CEO is completely rewritten every 6-12 months. Less coding, more managing/planning/company building, hiring, cleaning up messes, and generally getting things in place for what needs to happen a few months from now.In particular, you now have to deal with employees, who often have different motivations:
I knew the founder equation and had been focused on it since I knew I wanted to start a startup as a 19 year old. The employee equation is quite different so it took me a while to get it down.Fortunately, it can become a lot less stressful once you reach cruising altitude:
I'd say 75% of the stress is gone now from when we first started. Running a business is so much more enjoyable now. We're more confident. We're more patient. We fight less. We sleep more.I wish I could say it was this way for every startup that succeeded, but 75% is probably on the high side.
November 2009
I don't think Apple realizes how badly the App Store approval process
is broken. Or rather, I don't think they realize how much it matters
that it's broken.
The way Apple runs the App Store has harmed their reputation with
programmers more than anything else they've ever done.
Their reputation with programmers used to be great.
It used to be the most common complaint you heard
about Apple was that their fans admired them too uncritically.
The App Store has changed that. Now a lot of programmers
have started to see Apple as evil.
How much of the goodwill Apple once had with programmers have they
lost over the App Store? A third? Half? And that's just so far.
The App Store is an ongoing karma leak.
As a result of their process, the App Store is full of half-baked applications. I make a new version almost every day that I release to beta users. The version on the App Store feels old and crappy. I'm sure that a lot of developers feel this way: One emotion is "I'm not really proud about what's in the App Store", and it's combined with the emotion "Really, it's Apple's fault."Another wrote:
I believe that they think their approval process helps users by ensuring quality. In reality, bugs like ours get through all the time and then it can take 4-8 weeks to get that bug fix approved, leaving users to think that iPhone apps sometimes just don't work. Worse for Apple, these apps work just fine on other platforms that have immediate approval processes.Actually I suppose Apple has a third misconception: that all the complaints about App Store approvals are not a serious problem. They must hear developers complaining. But partners and suppliers are always complaining. It would be a bad sign if they weren't; it would mean you were being too easy on them. Meanwhile the iPhone is selling better than ever. So why do they need to fix anything?
We have triumphed over the unprincipled dissemination of facts.The other reason Apple should care what programmers think of them is that when you sell a platform, developers make or break you. If anyone should know this, Apple should. VisiCalc made the Apple II.
We have created, for the first time in all history, a garden of pure ideology, where each worker may bloom secure from the pests of contradictory and confusing truths.
While I did enjoy developing for the iPhone, the control they place on the App Store does not give me the drive to develop applications as I would like. In fact I don't intend to make any more iPhone applications unless absolutely necessary. [4]Can anything break this cycle? No device I've seen so far could. Palm and RIM haven't a hope. The only credible contender is Android. But Android is an orphan; Google doesn't really care about it, not the way Apple cares about the iPhone. Apple cares about the iPhone the way Google cares about search.
April 2010
The best way to come up with startup ideas is to ask yourself the
question: what do you wish someone would make for you?
There are two types of startup ideas: those that grow organically
out of your own life, and those that you decide, from afar, are
going to be necessary to some class of users other than you. Apple
was the first type. Apple happened because Steve Wozniak wanted a
computer. Unlike most people who wanted computers, he could design
one, so he did. And since lots of other people wanted the same
thing, Apple was able to sell enough of them to get the company
rolling. They still rely on this principle today, incidentally.
The iPhone is the phone Steve Jobs wants.
[1]
Our own startup, Viaweb, was of the second type. We made software
for building online stores. We didn't need this software ourselves.
We weren't direct marketers. We didn't even know when we started
that our users were called "direct marketers." But we were
comparatively old when we started the company (I was 30 and Robert
Morris was 29), so we'd seen enough to know users would need this
type of software.
[2]
There is no sharp line between the two types of ideas, but
the most successful startups seem to be closer to the Apple type
than the Viaweb type. When he was writing that first Basic interpreter
for the Altair, Bill Gates was writing something he would use, as
were Larry and Sergey when they wrote the first versions of Google.
Organic ideas are generally preferable to the made up kind, but
particularly so when the founders are young. It takes experience
to predict what other people will want. The worst ideas we see at
Y Combinator are from young founders making things they think other
people will want.
So if you want to start a startup and don't know yet what you're
going to do, I'd encourage you to focus initially on organic ideas.
What's missing or broken in your daily life? Sometimes if you just
ask that question you'll get immediate answers. It must have seemed
obviously broken to Bill Gates that you could only program the
Altair in machine language.
You may need to stand outside yourself a bit to see brokenness,
because you tend to get used to it and take it for granted. You
can be sure it's there, though. There are always great ideas sitting
right under our noses. In 2004 it was ridiculous that Harvard
undergrads were still using a Facebook printed on paper. Surely
that sort of thing should have been online.
There are ideas that obvious lying around now. The reason you're
overlooking them is the same reason you'd have overlooked the idea
of building Facebook in 2004: organic startup ideas usually don't
seem like startup ideas at first. We know now that Facebook was
very successful, but put yourself back in 2004. Putting undergraduates'
profiles online wouldn't have seemed like much of a startup idea.
And in fact, it wasn't initially a startup idea. When Mark spoke
at a YC dinner this winter he said he wasn't trying to start a
company when he wrote the first version of Facebook. It was just
a project. So was the Apple I when Woz first started working on
it. He didn't think he was starting a company. If these guys had
thought they were starting companies, they might have been tempted
to do something more "serious," and that would have been a mistake.
So if you want to come up with organic startup ideas, I'd encourage
you to focus more on the idea part and less on the startup part.
Just fix things that seem broken, regardless of whether it seems
like the problem is important enough to build a company on. If you
keep pursuing such threads it would be hard not to end up making
something of value to a lot of people, and when you do, surprise,
you've got a company.
[3]
Don't be discouraged if what you produce initially is something
other people dismiss as a toy. In fact, that's a good sign.
That's probably why everyone else has been overlooking the idea. The first
microcomputers were dismissed as toys. And the first planes, and
the first cars. At this point, when someone comes to us with
something that users like but that we could envision forum trolls
dismissing as a toy, it makes us especially likely to invest.
While young founders are at a disadvantage when coming up with
made-up ideas, they're the best source of organic ones, because
they're at the forefront of technology. They use the latest stuff.
They only just decided what to use, so why wouldn't they? And
because they use the latest stuff, they're in a position to discover
valuable types of fixable brokenness first.
There's nothing more valuable than an unmet need that is just
becoming fixable. If you find something broken that you can fix
for a lot of people, you've found a gold mine. As with an actual
gold mine, you still have to work hard to get the gold out of it.
But at least you know where the seam is, and that's the hard part.
Notes
[1]
This suggests a way to predict areas where Apple will be weak:
things Steve Jobs doesn't use. E.g. I doubt he is much into gaming.
[2]
In retrospect, we should have become direct marketers. If
I were doing Viaweb again, I'd open our own online store. If we
had, we'd have understood users a lot better. I'd encourage anyone
starting a startup to become one of its users, however unnatural it
seems.
[3]
Possible exception: It's hard to compete directly with open source software.
You can build things for programmers, but there has to be some part
you can charge for.
Thanks to Sam Altman, Trevor Blackwell, and Jessica Livingston
for reading drafts of this.
July 2010
I realized recently that what one thinks about in the shower in the
morning is more important than I'd thought. I knew it was a good
time to have ideas. Now I'd go further: now I'd say it's hard to
do a really good job on anything you don't think about in the shower.
Everyone who's worked on difficult problems is probably familiar
with the phenomenon of working hard to figure something out, failing,
and then suddenly seeing the answer a bit later while doing something
else. There's a kind of thinking you do without trying to. I'm
increasingly convinced this type of thinking is not merely helpful
in solving hard problems, but necessary. The tricky part is, you
can only control it indirectly.
[1]
I think most people have one top idea in their mind at any given
time. That's the idea their thoughts will drift toward when they're
allowed to drift freely. And this idea will thus tend to get all
the benefit of that type of thinking, while others are starved of
it. Which means it's a disaster to let the wrong idea become the
top one in your mind.
What made this clear to me was having an idea I didn't want as the
top one in my mind for two long stretches.
I'd noticed startups got way less done when they started raising
money, but it was not till we ourselves raised money that I understood
why. The problem is not the actual time it takes to meet with
investors. The problem is that once you start raising money, raising
money becomes the top idea in your mind. That becomes what you
think about when you take a shower in the morning. And that means
other questions aren't.
I'd hated raising money when I was running Viaweb, but I'd forgotten
why I hated it so much. When we raised money for Y Combinator, I
remembered. Money matters are particularly likely to become the
top idea in your mind. The reason is that they have to be. It's
hard to get money. It's not the sort of thing that happens by
default. It's not going to happen unless you let it become the
thing you think about in the shower. And then you'll make little
progress on anything else you'd rather be working on.
[2]
(I hear similar complaints from friends who are professors. Professors
nowadays seem to have become professional fundraisers who do a
little research on the side. It may be time to fix that.)
The reason this struck me so forcibly is that for most of the
preceding 10 years I'd been able to think about what I wanted. So
the contrast when I couldn't was sharp. But I don't think this
problem is unique to me, because just about every startup I've seen
grinds to a halt when they start raising money � or talking
to acquirers.
You can't directly control where your thoughts drift. If you're
controlling them, they're not drifting. But you can control them
indirectly, by controlling what situations you let yourself get
into. That has been the lesson for me: be careful what you let
become critical to you. Try to get yourself into situations where
the most urgent problems are ones you want to think about.
You don't have complete control, of course. An emergency could
push other thoughts out of your head. But barring emergencies you
have a good deal of indirect control over what becomes the top idea
in your mind.
I've found there are two types of thoughts especially worth
avoiding � thoughts like the Nile Perch in the way they push
out more interesting ideas. One I've already mentioned: thoughts
about money. Getting money is almost by definition an attention
sink.
The other is disputes. These too are engaging in the
wrong way: they have the same velcro-like shape as genuinely
interesting ideas, but without the substance. So avoid disputes
if you want to get real work done.
[3]
Even Newton fell into this trap. After publishing his theory of
colors in 1672 he found himself distracted by disputes for years,
finally concluding that the only solution was to stop publishing:
I see I have made myself a slave to Philosophy, but if I get free of Mr Linus's business I will resolutely bid adew to it eternally, excepting what I do for my privat satisfaction or leave to come out after me. For I see a man must either resolve to put out nothing new or become a slave to defend it. [4]Linus and his students at Liege were among the more tenacious critics. Newton's biographer Westfall seems to feel he was overreacting:
Recall that at the time he wrote, Newton's "slavery" consisted of five replies to Liege, totalling fourteen printed pages, over the course of a year.I'm more sympathetic to Newton. The problem was not the 14 pages, but the pain of having this stupid controversy constantly reintroduced as the top idea in a mind that wanted so eagerly to think about other things.
August 2010
Two years ago I
wrote about what I called "
The opportunity is a lot less unexploited now. Investors have
poured into this territory from both directions. VCs are much more
likely to make angel-sized investments than they were a year ago.
And meanwhile the past year has seen a dramatic increase in a new
type of investor: the super-angel, who operates like an angel, but
using other people's money, like a VC.
Though a lot of investors are entering this territory, there is
still room for more. The distribution of investors should mirror
the distribution of startups, which has the usual power law dropoff.
So there should be a lot more people investing tens or hundreds of
thousands than millions.
[2]
In fact, it may be good for angels that there are more people doing
angel-sized deals, because if angel rounds become more legitimate,
then startups may start to opt for angel rounds even when they
could, if they wanted, raise series A rounds from VCs. One reason
startups prefer series A rounds is that they're more prestigious.
But if angel investors become more active and better known, they'll
increasingly be able to compete with VCs in brand.
Of course, prestige isn't the main reason to prefer a series A
round. A startup will probably get more attention from investors
in a series A round than an angel round. So if a startup is choosing
between an angel round and an A round from a good VC fund, I usually
advise them to take the A round.
[3]
But while series A rounds aren't going away, I think VCs should be
more worried about super-angels than vice versa. Despite their
name, the super-angels are really mini VC funds, and they clearly
have existing VCs in their sights.
They would seem to have history on their side.
The pattern here seems the same
one we see when startups and established companies enter a new
market. Online video becomes possible, and YouTube plunges right
in, while existing media companies embrace it only half-willingly,
driven more by fear than hope, and aiming more to protect their
turf than to do great things for users. Ditto for PayPal. This
pattern is repeated over and over, and it's usually the invaders
who win. In this case the super-angels are the invaders. Angel
rounds are their whole business, as online video was for YouTube.
Whereas VCs who make angel investments mostly do it as a way to
generate deal flow for series A rounds.
[4]
On the other hand, startup investing is a very strange business.
Nearly all the returns are concentrated in a few big winners. If
the super-angels merely fail to invest in (and to some extent
produce) the big winners, they'll be out of business, even if they
invest in all the others.
VCs
Why don't VCs start doing smaller series A rounds? The sticking
point is board seats. In a traditional series A round, the partner
whose deal it is takes a seat on the startup's board. If we assume
the average startup runs for 6 years and a partner can bear to be
on 12 boards at once, then a VC fund can do 2 series A deals per
partner per year.
It has always seemed to me the solution is to take fewer board
seats. You don't have to be on the board to help a startup. Maybe
VCs feel they need the power that comes with board membership to
ensure their money isn't wasted. But have they tested that theory?
Unless they've tried not taking board seats and found their returns
are lower, they're not bracketing the problem.
I'm not saying VCs don't help startups. The good ones help them a
lot. What I'm saying is that the kind of help that matters, you
may not have to be a board member to give.
[5]
How will this all play out? Some VCs will probably adapt, by doing
more, smaller deals. I wouldn't be surprised if by streamlining
their selection process and taking fewer board seats, VC funds could
do 2 to 3 times as many series A rounds with no loss of quality.
But other VCs will make no more than superficial changes. VCs are
conservative, and the threat to them isn't mortal. The VC funds
that don't adapt won't be violently displaced. They'll edge gradually
into a different business without realizing it. They'll still do
what they will call series A rounds, but these will increasingly
be de facto series B rounds.
[6]
In such rounds they won't get the 25 to 40% of the company they do
now. You don't give up as much of the company in later rounds
unless something is seriously wrong. Since the VCs who don't adapt
will be investing later, their returns from winners may be smaller.
But investing later should also mean they have fewer losers. So
their ratio of risk to return may be the same or even better.
They'll just have become a different, more conservative, type of
investment.
Angels
In the big angel rounds that increasingly compete with series A
rounds, the investors won't take as much equity as VCs do now. And
VCs who try to compete with angels by doing more, smaller deals
will probably find they have to take less equity to do it. Which
is good news for founders: they'll get to keep more of the company.
The deal terms of angel rounds will become less restrictive
too—not just less restrictive than series A terms, but less
restrictive than angel terms have traditionally been.
In the future, angel rounds will less often be for specific amounts
or have a lead investor. In the old days, the standard m.o. for
startups was to find one angel to act as the lead investor. You'd
negotiate a round size and valuation with the lead, who'd supply
some but not all of the money. Then the startup and the lead would
cooperate to find the rest.
The future of angel rounds looks more like this: instead of a fixed
round size, startups will do a rolling close, where they take money
from investors one at a time till they feel they have enough.
[7]
And though there's going to be one investor who gives them the first
check, and his or her help in recruiting other investors will
certainly be welcome, this initial investor will no longer be the
lead in the old sense of managing the round. The startup will now
do that themselves.
There will continue to be lead investors in the sense of investors
who take the lead in advising a startup. They may also make
the biggest investment. But they won't always have to be the one
terms are negotiated with, or be the first money in, as they have
in the past. Standardized paperwork will do away with the need to
negotiate anything except the valuation, and that will get easier
too.
If multiple investors have to share a valuation, it will be whatever
the startup can get from the first one to write a check, limited
by their guess at whether this will make later investors balk. But
there may not have to be just one valuation. Startups are increasingly
raising money on convertible notes, and convertible notes have not
valuations but at most valuation caps: caps on what the
effective valuation will be when the debt converts to equity (in a
later round, or upon acquisition if that happens first). That's
an important difference because it means a startup could do multiple
notes at once with different caps. This is now starting to happen,
and I predict it will become more common.
Sheep
The reason things are moving this way is that the old way sucked
for startups. Leads could (and did) use a fixed size round as a
legitimate-seeming way of saying what all founders hate to hear:
I'll invest if other people will. Most investors, unable to judge
startups for themselves, rely instead on the opinions of other
investors. If everyone wants in, they want in too; if not, not.
Founders hate this because it's a recipe for deadlock, and delay
is the thing a startup can least afford. Most investors know this
m.o. is lame, and few say openly that they're doing it. But the
craftier ones achieve the same result by offering to lead rounds
of fixed size and supplying only part of the money. If the startup
can't raise the rest, the lead is out too. How could they go ahead
with the deal? The startup would be underfunded!
In the future, investors will increasingly be unable to offer
investment subject to contingencies like other people investing.
Or rather, investors who do that will get last place in line.
Startups will go to them only to fill up rounds that are mostly
subscribed. And since hot startups tend to have rounds that are
oversubscribed, being last in line means they'll probably miss the
hot deals. Hot deals and successful startups are not identical,
but there is a significant correlation.
[8]
So investors who won't invest unilaterally will have lower returns.
Investors will probably find they do better when deprived of this
crutch anyway. Chasing hot deals doesn't make investors choose
better; it just makes them feel better about their choices. I've
seen feeding frenzies both form and fall apart many times, and as
far as I can tell they're mostly random.
[9]
If investors can
no longer rely on their herd instincts, they'll have to think more
about each startup before investing. They may be surprised how
well this works.
Deadlock wasn't the only disadvantage of letting a lead investor
manage an angel round. The investors would not infrequently collude
to push down the valuation. And rounds took too long to close,
because however motivated the lead was to get the round closed, he
was not a tenth as motivated as the startup.
Increasingly, startups are taking charge of their own angel rounds.
Only a few do so far, but I think we can already declare the old
way dead, because those few are the best startups. They're the
ones in a position to tell investors how the round is going to work.
And if the startups you want to invest in do things a certain way,
what difference does it make what the others do?
Traction
In fact, it may be slightly misleading to say that angel rounds
will increasingly take the place of series A rounds. What's really
happening is that startup-controlled rounds are taking the place
of investor-controlled rounds.
This is an instance of a very important meta-trend, one that Y
Combinator itself has been based on from the beginning: founders
are becoming increasingly powerful relative to investors. So if
you want to predict what the future of venture funding will be like,
just ask: how would founders like it to be? One by one, all the
things founders dislike about raising money are going to get
eliminated.
[10]
Using that heuristic, I'll predict a couple more things. One is
that investors will increasingly be unable to wait for startups to
have "traction" before they put in significant money. It's hard
to predict in advance which startups will succeed. So most investors
prefer, if they can, to wait till the startup is already succeeding,
then jump in quickly with an offer. Startups hate this as well,
partly because it tends to create deadlock, and partly because it
seems kind of slimy. If you're a promising startup but don't yet
have significant growth, all the investors are your friends in
words, but few are in actions. They all say they love you, but
they all wait to invest. Then when you start to see growth, they
claim they were your friend all along, and are aghast at the thought
you'd be so disloyal as to leave them out of your round. If founders
become more powerful, they'll be able to make investors give them
more money upfront.
(The worst variant of this behavior is the tranched deal, where the
investor makes a small initial investment, with more to follow if
the startup does well. In effect, this structure gives the investor
a free option on the next round, which they'll only take if it's
worse for the startup than they could get in the open market.
Tranched deals are an abuse. They're increasingly rare, and they're
going to get rarer.)
[11]
Investors don't like trying to predict which startups will succeed,
but increasingly they'll have to. Though the way that happens won't
necessarily be that the behavior of existing investors will change;
it may instead be that they'll be replaced by other investors with
different behavior—that investors who understand startups
well enough to take on the hard problem of predicting their trajectory
will tend to displace suits whose skills lie more in raising money
from LPs.
Speed
The other thing founders hate most about fundraising is how long
it takes. So as founders become more powerful, rounds should start
to close faster.
Fundraising is still terribly distracting for startups. If you're
a founder in the middle of raising a round, the round is the top idea in your mind, which means working on the
company isn't. If a round takes 2 months to close, which is
reasonably fast by present standards, that means 2 months during
which the company is basically treading water. That's the worst
thing a startup could do.
So if investors want to get the best deals, the way to do it will
be to close faster. Investors don't need weeks to make up their
minds anyway. We decide based on about 10 minutes of reading an
application plus 10 minutes of in person interview, and we only
regret about 10% of our decisions. If we can decide in 20 minutes,
surely the next round of investors can decide in a couple days.
[12]
There are a lot of institutionalized delays in startup funding: the
multi-week mating dance with investors; the distinction between
termsheets and deals; the fact that each series A has enormously
elaborate, custom paperwork. Both founders and investors tend to
take these for granted. It's the way things have always been. But
ultimately the reason these delays exist is that they're to the
advantage of investors. More time gives investors more information
about a startup's trajectory, and it also tends to make startups
more pliable in negotiations, since they're usually short of money.
These conventions weren't designed to drag out the funding process,
but that's why they're allowed to persist. Slowness is to the
advantage of investors, who have in the past been the ones with the
most power. But there is no need for rounds to take months or even
weeks to close, and once founders realize that, it's going to stop.
Not just in angel rounds, but in series A rounds too. The future
is simple deals with standard terms, done quickly.
One minor abuse that will get corrected in the process is option
pools. In a traditional series A round, before the VCs invest they
make the company set aside a block of stock for future hires—usually
between 10 and 30% of the company. The point is to ensure this
dilution is borne by the existing shareholders. The practice isn't
dishonest; founders know what's going on. But it makes deals
unnecessarily complicated. In effect the valuation is 2 numbers.
There's no need to keep doing this.
[13]
The final thing founders want is to be able to sell some of
their own stock in later rounds. This won't be a change,
because the practice is now quite common. A lot of investors
hated the idea, but the world hasn't exploded as a result,
so it will happen more, and more openly.
Surprise
I've talked here about a bunch of changes that will be forced on
investors as founders become more powerful. Now the good news:
investors may actually make more money as a result.
A couple days ago an interviewer
asked
me if founders having more
power would be better or worse for the world. I was surprised,
because I'd never considered that question. Better or worse, it's
happening. But after a second's reflection, the answer seemed
obvious. Founders understand their companies better than investors,
and it has to be better if the people with more knowledge have more
power.
One of the mistakes novice pilots make is overcontrolling the
aircraft: applying corrections too vigorously, so the aircraft
oscillates about the desired configuration instead of approaching
it asymptotically. It seems probable that investors have till now
on average been overcontrolling their portfolio companies. In a
lot of startups, the biggest source of stress for the founders is
not competitors but investors. Certainly it was for us at Viaweb.
And this is not a new phenomenon: investors were James Watt's biggest
problem too. If having less power prevents investors from
overcontrolling startups, it should be better not just for founders
but for investors too.
Investors may end up with less stock per startup, but startups will
probably do better with founders more in control, and there will
almost certainly be more of them. Investors all compete with one
another for deals, but they aren't one another's main competitor.
Our main competitor is employers. And so far that competitor is
crushing us. Only a tiny fraction of people who could start a
startup do. Nearly all customers choose the competing product, a
job. Why? Well, let's look at the product we're offering. An
unbiased review would go something like this:
Starting a startup gives you more freedom and the opportunity to make a lot more money than a job, but it's also hard work and at times very stressful.Much of the stress comes from dealing with investors. If reforming the investment process removed that stress, we'd make our product much more attractive. The kind of people who make good startup founders don't mind dealing with technical problems—they enjoy technical problems—but they hate the type of problems investors cause.
August 2010
When I went to work for Yahoo after they bought our startup in 1998,
it felt like the center of the world. It was supposed to be the
next big thing. It was supposed to be what Google turned out to
be.
What went wrong? The problems that hosed Yahoo go back a long time,
practically to the beginning of the company. They were already
very visible when I got there in 1998. Yahoo had two problems
Google didn't: easy money, and ambivalence about being a technology
company.
Money
The first time I met Jerry Yang, we thought we were meeting for
different reasons. He thought we were meeting so he could check
us out in person before buying us. I thought we were meeting so we
could show him our new technology, Revenue Loop. It was a way of
sorting shopping search results. Merchants bid a percentage of
sales for traffic, but the results were sorted not by the bid but
by the bid times the average amount a user would buy. It was
like the algorithm Google uses now to sort ads, but this was in the
spring of 1998, before Google was founded.
Revenue Loop was the optimal sort for shopping search, in the sense
that it sorted in order of how much money Yahoo would make from
each link. But it wasn't just optimal in that sense. Ranking
search results by user behavior also makes search better. Users
train the search: you can start out finding matches based on mere
textual similarity, and as users buy more stuff the search results
get better and better.
Jerry didn't seem to care. I was confused. I was showing him
technology that extracted the maximum value from search traffic,
and he didn't care? I couldn't tell whether I was explaining it
badly, or he was just very poker faced.
I didn't realize the answer till later, after I went to work at
Yahoo. It was neither of my guesses. The reason Yahoo didn't care
about a technique that extracted the full value of traffic was that
advertisers were already overpaying for it. If Yahoo merely extracted
the actual value, they'd have made less.
Hard as it is to believe now, the big money then was in banner ads.
Advertisers were willing to pay ridiculous amounts for banner ads.
So Yahoo's sales force had evolved to exploit this source of revenue.
Led by a large and terrifyingly formidable man called Anil Singh,
Yahoo's sales guys would fly out to Procter & Gamble and come back
with million dollar orders for banner ad impressions.
The prices seemed cheap compared to print, which was what advertisers,
for lack of any other reference, compared them to. But they were
expensive compared to what they were worth. So these big, dumb
companies were a dangerous source of revenue to depend on. But
there was another source even more dangerous: other Internet startups.
By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme.
Investors were excited about the Internet. One reason they were
excited was Yahoo's revenue growth. So they invested in new Internet
startups. The startups then used the money to buy ads on Yahoo to
get traffic. Which caused yet more revenue growth for Yahoo, and
further convinced investors the Internet was worth investing in.
When I realized this one day, sitting in my cubicle, I jumped up
like Archimedes in his bathtub, except instead of "Eureka!" I was
shouting "Sell!"
Both the Internet startups and the Procter & Gambles were doing
brand advertising. They didn't care about targeting. They just
wanted lots of people to see their ads. So traffic became the thing
to get at Yahoo. It didn't matter what type.
[1]
It wasn't just Yahoo. All the search engines were doing it. This
was why they were trying to get people to start calling them "portals"
instead of "search engines." Despite the actual meaning of the word
portal, what they meant by it was a site where users would find
what they wanted on the site itself, instead of just passing through
on their way to other destinations, as they did at a search engine.
I remember telling David Filo in late 1998 or early 1999 that Yahoo
should buy Google, because I and most of the other programmers in
the company were using it instead of Yahoo for search. He told me
that it wasn't worth worrying about. Search was only 6% of our
traffic, and we were growing at 10% a month. It wasn't worth doing
better.
I didn't say "But search traffic is worth more than other traffic!"
I said "Oh, ok." Because I didn't realize either how much search
traffic was worth. I'm not sure even Larry and Sergey did then.
If they had, Google presumably wouldn't have expended any effort
on enterprise search.
If circumstances had been different, the people running Yahoo might
have realized sooner how important search was. But they had the
most opaque obstacle in the world between them and the truth: money.
As long as customers were writing big checks for banner ads, it was
hard to take search seriously. Google didn't have that to distract
them.
Hackers
But Yahoo also had another problem that made it hard to change
directions. They'd been thrown off balance from the start by their
ambivalence about being a technology company.
One of the weirdest things about Yahoo when I went to work there
was the way they insisted on calling themselves a "media company."
If you walked around their offices, it seemed like a software
company. The cubicles were full of programmers writing code, product
managers thinking about feature lists and ship dates, support people
(yes, there were actually support people) telling users to restart
their browsers, and so on, just like a software company. So why
did they call themselves a media company?
One reason was the way they made money: by selling ads. In 1995
it was hard to imagine a technology company making money that way.
Technology companies made money by selling their software to users.
Media companies sold ads. So they must be a media company.
Another big factor was the fear of Microsoft. If anyone at Yahoo
considered the idea that they should be a technology company, the
next thought would have been that Microsoft would crush them.
It's hard for anyone much younger than me to understand the fear
Microsoft still inspired in 1995. Imagine a company with several
times the power Google has now, but way meaner. It was perfectly
reasonable to be afraid of them. Yahoo watched them crush the first
hot Internet company, Netscape. It was reasonable to worry that
if they tried to be the next Netscape, they'd suffer the same fate.
How were they to know that Netscape would turn out to be Microsoft's
last victim?
It would have been a clever move to pretend to be a media company
to throw Microsoft off their scent. But unfortunately Yahoo actually
tried to be one, sort of. Project managers at Yahoo were called
"producers," for example, and the different parts of the company
were called "properties." But what Yahoo really needed to be was a
technology company, and by trying to be something else, they ended
up being something that was neither here nor there. That's why
Yahoo as a company has never had a sharply defined identity.
The worst consequence of trying to be a media company was that they
didn't take programming seriously enough. Microsoft (back in the
day), Google, and Facebook have all had hacker-centric cultures.
But Yahoo treated programming as a commodity. At Yahoo, user-facing software
was controlled by product managers and designers. The job of
programmers was just to take the work of the product managers and
designers the final step, by translating it into code.
One obvious result of this practice was that when Yahoo built things,
they often weren't very good. But that wasn't the worst problem.
The worst problem was that they hired bad programmers.
Microsoft (back in the day), Google, and Facebook have all been
obsessed with hiring the best programmers. Yahoo wasn't. They
preferred good programmers to bad ones, but they didn't have the
kind of single-minded, almost obnoxiously elitist focus on hiring
the smartest people that the big winners have had. And when you
consider how much competition there was for programmers when they
were hiring, during the Bubble, it's not surprising that the quality
of their programmers was uneven.
In technology, once you have bad programmers, you're doomed. I
can't think of an instance where a company has sunk into technical
mediocrity and recovered. Good programmers want to work with other
good programmers. So once the quality of programmers at your company
starts to drop, you enter a death spiral from which there is no
recovery.
[2]
At Yahoo this death spiral started early. If there was ever a time when
Yahoo was a Google-style talent magnet, it was over by the time I
got there in 1998.
The company felt prematurely old. Most technology companies
eventually get taken over by suits and middle managers. At Yahoo
it felt as if they'd deliberately accelerated this process. They
didn't want to be a bunch of hackers. They wanted to be suits. A
media company should be run by suits.
The first time I visited Google, they had about 500 people, the
same number Yahoo had when I went to work there. But boy did things
seem different. It was still very much a hacker-centric culture.
I remember talking to some programmers in the cafeteria about the
problem of gaming search results (now known as SEO), and they asked
"what should we do?" Programmers at Yahoo wouldn't have asked that.
Theirs was not to reason why; theirs was to build what product
managers spec'd. I remember coming away from Google thinking "Wow,
it's still a startup."
There's not much we can learn from Yahoo's first fatal flaw. It's
probably too much to hope any company could avoid being damaged by
depending on a bogus source of revenue. But startups can learn an
important lesson from the second one. In the software business,
you can't afford not to have a hacker-centric culture.
Probably the most impressive commitment I've heard to having a
hacker-centric culture came from Mark Zuckerberg, when he spoke at
Startup School in 2007. He said that in the early days Facebook
made a point of hiring programmers even for jobs that would not
ordinarily consist of programming, like HR and marketing.
So which companies need to have a hacker-centric culture? Which
companies are "in the software business" in this respect? As Yahoo
discovered, the area covered by this rule is bigger than most people
realize. The answer is: any company that needs to have good software.
Why would great programmers want to work for a company that didn't
have a hacker-centric culture, as long as there were others that
did? I can imagine two reasons: if they were paid a huge amount,
or if the domain was interesting and none of the companies in it
were hacker-centric. Otherwise you can't attract good programmers
to work in a suit-centric culture. And without good programmers
you won't get good software, no matter how many people you put on
a task, or how many procedures you establish to ensure "quality."
Hacker culture
often seems kind of irresponsible. That's why people
proposing to destroy it use phrases like "adult supervision." That
was the phrase they used at Yahoo. But there are worse things than
seeming irresponsible. Losing, for example.
Notes
[1]
The closest we got to targeting when I was there was when we
created pets.yahoo.com in order to provoke a bidding war between 3
pet supply startups for the spot as top sponsor.
[2]
In theory you could beat the death spiral by buying good
programmers instead of hiring them. You can get programmers
who would never have come to you as employees by buying their
startups. But so far the only companies smart enough
to do this are companies smart enough not to need to.
Thanks to Trevor Blackwell, Jessica Livingston, and
Geoff Ralston for
reading drafts of this.
September 2010
The reason startups have been using
more convertible notes in angel
rounds is that they make deals close faster. By making it easier
for startups to give different prices to different investors, they
help them break the sort of deadlock that happens when investors
all wait to see who else is going to invest.
By far the biggest influence on investors' opinions of a startup
is the opinion of other investors. There are very, very few who
simply decide for themselves. Any startup founder can tell you the
most common question they hear from investors is not about the
founders or the product, but "who else is investing?"
That tends to produce deadlocks. Raising an old-fashioned
fixed-size equity round can take weeks, because all the angels sit around
waiting for the others to commit, like competitors in a bicycle
sprint who deliberately ride slowly at the start so they can follow
whoever breaks first.
Convertible notes let startups beat such deadlocks by rewarding
investors willing to move first with lower (effective) valuations.
Which they deserve because they're taking more risk. It's much
safer to invest in a startup Ron Conway has already invested in;
someone who comes after him should pay a higher price.
The reason convertible notes allow more flexibility in price is
that valuation caps aren't actual valuations, and notes are cheap
and easy to do. So you can do high-resolution fundraising: if you
wanted you could have a separate note with a different cap for each
investor.
That cap need not simply rise monotonically. A startup could
also give better deals to investors they expected to help
them most. The point is simply that different investors,
whether because of the help they offer or their willingness to
commit, have different values for
startups, and their terms should reflect that.
Different terms for different investors is
clearly the way of the future. Markets always evolve toward higher
resolution. You may not need to use convertible notes to do it.
With sufficiently lightweight standardized equity terms (and some
changes in investors' and lawyers' expectations about equity rounds)
you might be able to do the same thing with equity instead of debt.
Either would be fine with startups, so long as they can easily
change their valuation.
Deadlocks weren't the only problem with fixed-size equity rounds.
Another was that startups had to decide in advance how much to
raise. I think it's a mistake for a startup to fix upon a specific
number. If investors are easily convinced, the startup should raise more
now, and if investors are skeptical, the startup should take a
smaller amount and use that to get the company to the point where
it's more convincing.
It's just not reasonable to expect startups to pick an optimal round
size in advance, because that depends on the reactions of investors,
and those are impossible to predict.
Fixed-size, multi-investor angel rounds are such a bad idea for
startups that one wonders why things were ever done that way. One
possibility is that this custom reflects the way investors like to
collude when they can get away with it. But I think the actual
explanation is less sinister. I think angels (and their lawyers)
organized rounds this way in unthinking imitation of VC series A
rounds. In a series A, a fixed-size equity round with a lead makes
sense, because there is usually just one big investor, who is
unequivocally the lead. Fixed-size series A rounds already are
high res. But the more investors you have in a round, the less
sense it makes for everyone to get the same price.
The most interesting question here may be what high res fundraising
will do to the world of investors. Bolder investors will now get
rewarded with lower prices. But more important, in a
hits-driven business, is that they'll be able to get into the deals
they want. Whereas the "who else is investing?" type of investors
will not only pay higher prices, but may not be able to get into
the best deals at all.
Thanks to Immad Akhund, Sam Altman, John Bautista, Pete Koomen,
Jessica Livingston, Dan Siroker, Harj Taggar, and
Fred Wilson for reading drafts of this.
October 2010
Silicon Valley proper is mostly suburban sprawl. At first glance
it doesn't seem there's anything to see. It's not the sort of place
that has conspicuous monuments. But if you look, there are subtle
signs you're in a place that's different from other places.
1. Stanford
University
Stanford is a strange place. Structurally it is to an ordinary
university what suburbia is to a city. It's enormously spread out,
and feels surprisingly empty much of the time. But notice the
weather. It's probably perfect. And notice the beautiful mountains
to the west. And though you can't see it, cosmopolitan San Francisco
is 40 minutes to the north. That combination is much of the reason
Silicon Valley grew up around this university and not some other
one.
2. University
Ave
A surprising amount of the work of the Valley is done in the cafes
on or just off University Ave in Palo Alto. If you visit on a
weekday between 10 and 5, you'll often see founders pitching
investors. In case you can't tell, the founders are the ones leaning
forward eagerly, and the investors are the ones sitting back with
slightly pained expressions.
3. The Lucky
Office
The office at 165 University Ave was Google's first. Then it was
Paypal's. (Now it's Wepay's.) The interesting thing about it is
the location. It's a smart move to put a startup in a place with
restaurants and people walking around instead of in an office park,
because then the people who work there want to stay there, instead
of fleeing as soon as conventional working hours end. They go out
for dinner together, talk about ideas, and then come back and
implement them.
It's important to realize that Google's current location in an
office park is not where they started; it's just where they were
forced to move when they needed more space. Facebook was till
recently across the street, till they too had to move because they
needed more space.
4. Old
Palo Alto
Palo Alto was not originally a suburb. For the first 100 years or
so of its existence, it was a college town out in the countryside.
Then in the mid 1950s it was engulfed in a wave of suburbia that
raced down the peninsula. But Palo Alto north of Oregon expressway
still feels noticeably different from the area around it. It's one
of the nicest places in the Valley. The buildings are old (though
increasingly they are being torn down and replaced with generic
McMansions) and the trees are tall. But houses are very
expensive—around $1000 per square foot. This is post-exit
Silicon Valley.
5. Sand
Hill Road
It's interesting to see the VCs' offices on the north side of Sand
Hill Road precisely because they're so boringly uniform. The
buildings are all more or less the same, their exteriors express
very little, and they are arranged in a confusing maze. (I've been
visiting them for years and I still occasionally get lost.) It's
not a coincidence. These buildings are a pretty accurate reflection
of the VC business.
If you go on a weekday you may see groups of founders there to meet
VCs. But mostly you won't see anyone; bustling is the last word
you'd use to describe the atmos. Visiting Sand Hill Road reminds
you that the opposite of "down and dirty" would be "up and clean."
6. Castro
Street
It's a tossup whether Castro Street or University Ave should be
considered the heart of the Valley now. University Ave would have
been 10 years ago. But Palo Alto is getting expensive. Increasingly
startups are located in Mountain View, and Palo Alto is a place
they come to meet investors. Palo Alto has a lot of different
cafes, but there is one that clearly dominates in Mountain View:
Red
Rock.
7. Google
Google spread out from its first building in Mountain View
to a lot of the surrounding ones. But because the
buildings were built at different times by different people,
the place doesn't have the sterile, walled-off feel that a typical
large company's headquarters have. It definitely has a flavor of
its own though. You sense there is something afoot. The general
atmos is vaguely utopian; there are lots of Priuses, and people who
look like they drive them.
You can't get into Google unless you know someone there. It's very
much worth seeing inside if you can, though. Ditto for Facebook,
at the end of California Ave in Palo Alto, though there is nothing
to see outside.
8. Skyline
Drive
Skyline Drive runs along the crest of the Santa Cruz mountains. On
one side is the Valley, and on the other is the sea—which
because it's cold and foggy and has few harbors, plays surprisingly
little role in the lives of people in the Valley, considering how
close it is. Along some parts of Skyline the dominant trees are
huge redwoods, and in others they're live oaks. Redwoods mean those
are the parts where the fog off the coast comes in at night; redwoods
condense rain out of fog. The MROSD manages a collection of great walking trails off
Skyline.
9. 280
Silicon Valley has two highways running the length of it: 101, which
is pretty ugly, and 280, which is one of the more beautiful highways
in the world. I always take 280 when I have a choice. Notice the
long narrow lake to the west? That's the San Andreas Fault. It
runs along the base of the hills, then heads uphill through Portola
Valley. One of the MROSD trails runs right along
the fault. A string of rich neighborhoods runs along the
foothills to the west of 280: Woodside, Portola Valley, Los Altos
Hills, Saratoga, Los Gatos.
SLAC goes right under 280 a little bit south of Sand Hill Road. And a couple miles south of that is the Valley's equivalent of the "Welcome to Las Vegas" sign: The Dish.
Notes
I skipped the Computer
History Museum because this is a list of where to see the Valley
itself, not where to see artifacts from it. I also skipped San
Jose. San Jose calls itself the capital of Silicon Valley, but
when people in the Valley use the phrase "the city," they mean San
Francisco. San Jose is a dotted line on a map.
Thanks to Sam Altman, Paul Buchheit, Patrick Collison, and Jessica Livingston
for reading drafts of this.
October 2010
After barely changing at all for decades, the startup funding
business is now in what could, at least by comparison, be called
turmoil. At Y Combinator we've seen dramatic changes in the funding
environment for startups. Fortunately one of them is much higher
valuations.
The trends we've been seeing are probably not YC-specific. I wish
I could say they were, but the main cause is probably just that we
see trends first—partly because the startups we fund are very
plugged into the Valley and are quick to take advantage of anything
new, and partly because we fund so many that we have enough data
points to see patterns clearly.
What we're seeing now, everyone's probably going to be seeing in
the next couple years. So I'm going to explain what we're seeing,
and what that will mean for you if you try to raise money.
Super-Angels
Let me start by describing what the world of startup funding used
to look like. There used to be two sharply differentiated types
of investors: angels and venture capitalists. Angels are individual
rich people who invest small amounts of their own money, while VCs
are employees of funds that invest large amounts of other people's.
For decades there were just those two types of investors, but now
a third type has appeared halfway between them: the so-called
super-angels.
[1]
And VCs have been provoked by their arrival
into making a lot of angel-style investments themselves. So the
previously sharp line between angels and VCs has become hopelessly
blurred.
There used to be a no man's land between angels and VCs. Angels
would invest $20k to $50k apiece, and VCs usually a million or more.
So an angel round meant a collection of angel investments that
combined to maybe $200k, and a VC round meant a series A round in
which a single VC fund (or occasionally two) invested $1-5 million.
The no man's land between angels and VCs was a very inconvenient
one for startups, because it coincided with the amount many wanted
to raise. Most startups coming out of Demo Day wanted to raise
around $400k. But it was a pain to stitch together that much out
of angel investments, and most VCs weren't interested in investments
so small. That's the fundamental reason the super-angels have
appeared. They're responding to the market.
The arrival of a new type of investor is big news for startups,
because there used to be only two and they rarely competed with one
another. Super-angels compete with both angels and VCs. That's
going to change the rules about how to raise money. I don't know
yet what the new rules will be, but it looks like most of the changes
will be for the better.
A super-angel has some of the qualities of an angel, and some of
the qualities of a VC. They're usually individuals, like angels.
In fact many of the current super-angels were initially angels of
the classic type. But like VCs, they invest other people's money.
This allows them to invest larger amounts than angels: a typical
super-angel investment is currently about $100k. They make investment
decisions quickly, like angels. And they make a lot more investments
per partner than VCs—up to 10 times as many.
The fact that super-angels invest other people's money makes them
doubly alarming to VCs. They don't just compete for startups; they
also compete for investors. What super-angels really are is a new
form of fast-moving, lightweight VC fund. And those of us in the
technology world know what usually happens when something comes
along that can be described in terms like that. Usually it's the
replacement.
Will it be? As of now, few of the startups that take money from
super-angels are ruling out taking VC money. They're just postponing
it. But that's still a problem for VCs. Some of the startups that
postpone raising VC money may do so well on the angel money they
raise that they never bother to raise more. And those who do raise
VC rounds will be able to get higher valuations when they do. If
the best startups get 10x higher valuations when they raise series
A rounds, that would cut VCs' returns from winners at least tenfold.
[2]
So I think VC funds are seriously threatened by the super-angels.
But one thing that may save them to some extent is the uneven
distribution of startup outcomes: practically all the returns are
concentrated in a few big successes. The expected value of a startup
is the percentage chance it's Google. So to the extent that winning
is a matter of absolute returns, the super-angels could win practically
all the battles for individual startups and yet lose the war, if
they merely failed to get those few big winners. And there's a
chance that could happen, because the top VC funds have better
brands, and can also do more for their portfolio companies.
[3]
Because super-angels make more investments per partner, they have
less partner per investment. They can't pay as much attention to
you as a VC on your board could. How much is that extra attention
worth? It will vary enormously from one partner to another. There's
no consensus yet in the general case. So for now this is something
startups are deciding individually.
Till now, VCs' claims about how much value they added were sort of
like the government's. Maybe they made you feel better, but you
had no choice in the matter, if you needed money on the scale only
VCs could supply. Now that VCs have competitors, that's going to
put a market price on the help they offer. The interesting thing
is, no one knows yet what it will be.
Do startups that want to get really big need the sort of advice and
connections only the top VCs can supply? Or would super-angel money
do just as well? The VCs will say you need them, and the super-angels
will say you don't. But the truth is, no one knows yet, not even
the VCs and super-angels themselves. All the super-angels know
is that their new model seems promising enough to be worth trying,
and all the VCs know is that it seems promising enough to worry
about.
Rounds
Whatever the outcome, the conflict between VCs and super-angels is
good news for founders. And not just for the obvious reason that
more competition for deals means better terms. The whole shape of
deals is changing.
One of the biggest differences between angels and VCs is the amount
of your company they want. VCs want a lot. In a series A round
they want a third of your company, if they can get it. They don't
care much how much they pay for it, but they want a lot because the
number of series A investments they can do is so small. In a
traditional series A investment, at least one partner from the VC
fund takes a seat on your board.
[4]
Since board seats last about
5 years and each partner can't handle more than about 10 at once,
that means a VC fund can only do about 2 series A deals per partner
per year. And that means they need to get as much of the company
as they can in each one. You'd have to be a very promising startup
indeed to get a VC to use up one of his 10 board seats for only a
few percent of you.
Since angels generally don't take board seats, they don't have this
constraint. They're happy to buy only a few percent of you. And
although the super-angels are in most respects mini VC funds, they've
retained this critical property of angels. They don't take board
seats, so they don't need a big percentage of your company.
Though that means you'll get correspondingly less attention from
them, it's good news in other respects. Founders never really liked
giving up as much equity as VCs wanted. It was a lot of the company
to give up in one shot. Most founders doing series A deals would
prefer to take half as much money for half as much stock, and then
see what valuation they could get for the second half of the stock
after using the first half of the money to increase its value. But
VCs never offered that option.
Now startups have another alternative. Now it's easy to raise angel
rounds about half the size of series A rounds. Many of the startups
we fund are taking this route, and I predict that will be true of
startups in general.
A typical big angel round might be $600k on a convertible note with
a valuation cap of $4 million premoney. Meaning that when the note
converts into stock (in a later round, or upon acquisition), the
investors in that round will get .6 / 4.6, or 13% of the company.
That's a lot less than the 30 to 40% of the company you usually
give up in a series A round if you do it so early.
[5]
But the advantage of these medium-sized rounds is not just that
they cause less dilution. You also lose less control. After an
angel round, the founders almost always still have control of the
company, whereas after a series A round they often don't. The
traditional board structure after a series A round is two founders,
two VCs, and a (supposedly) neutral fifth person. Plus series A
terms usually give the investors a veto over various kinds of
important decisions, including selling the company. Founders usually
have a lot of de facto control after a series A, as long as things
are going well. But that's not the same as just being able to do
what you want, like you could before.
A third and quite significant advantage of angel rounds is that
they're less stressful to raise. Raising a traditional series A
round has in the past taken weeks, if not months. When a VC firm
can only do 2 deals per partner per year, they're careful about
which they do. To get a traditional series A round you have to go
through a series of meetings, culminating in a full partner meeting
where the firm as a whole says yes or no. That's the really scary
part for founders: not just that series A rounds take so long, but
at the end of this long process the VCs might still say no. The
chance of getting rejected after the full partner meeting averages
about 25%. At some firms it's over 50%.
Fortunately for founders, VCs have been getting a lot faster.
Nowadays Valley VCs are more likely to take 2 weeks than 2 months.
But they're still not as fast as angels and super-angels, the most
decisive of whom sometimes decide in hours.
Raising an angel round is not only quicker, but you get feedback
as it progresses. An angel round is not an all or nothing thing
like a series A. It's composed of multiple investors with varying
degrees of seriousness, ranging from the upstanding ones who commit
unequivocally to the jerks who give you lines like "come back to
me to fill out the round." You usually start collecting money from
the most committed investors and work your way out toward the
ambivalent ones, whose interest increases as the round fills up.
But at each point you know how you're doing. If investors turn
cold you may have to raise less, but when investors in an angel
round turn cold the process at least degrades gracefully, instead
of blowing up in your face and leaving you with nothing, as happens
if you get rejected by a VC fund after a full partner meeting.
Whereas if investors seem hot, you can not only close the round
faster, but now that convertible notes are becoming the norm,
actually raise the price to reflect demand.
Valuation
However, the VCs have a weapon they can use against the super-angels,
and they have started to use it. VCs have started making angel-sized
investments too. The term "angel round" doesn't mean that all the
investors in it are angels; it just describes the structure of the
round. Increasingly the participants include VCs making investments
of a hundred thousand or two. And when VCs invest in angel rounds
they can do things that super-angels don't like. VCs are quite
valuation-insensitive in angel rounds—partly because they are
in general, and partly because they don't care that much about the
returns on angel rounds, which they still view mostly as a way to
recruit startups for series A rounds later. So VCs who invest in
angel rounds can blow up the valuations for angels and super-angels
who invest in them.
[6]
Some super-angels seem to care about valuations. Several turned
down YC-funded startups after Demo Day because their valuations
were too high. This was not a problem for the startups; by definition
a high valuation means enough investors were willing to accept it.
But it was mysterious to me that the super-angels would quibble
about valuations. Did they not understand that the big returns
come from a few big successes, and that it therefore mattered far
more which startups you picked than how much you paid for them?
After thinking about it for a while and observing certain other
signs, I have a theory that explains why the super-angels may be
smarter than they seem. It would make sense for super-angels to
want low valuations if they're hoping to invest in startups that
get bought early. If you're hoping to hit the next Google, you
shouldn't care if the valuation is 20 million. But if you're looking
for companies that are going to get bought for 30 million, you care.
If you invest at 20 and the company gets bought for 30, you only
get 1.5x. You might as well buy Apple.
So if some of the super-angels were looking for companies that could
get acquired quickly, that would explain why they'd care about
valuations. But why would they be looking for those? Because
depending on the meaning of "quickly," it could actually be very
profitable. A company that gets acquired for 30 million is a failure
to a VC, but it could be a 10x return for an angel, and moreover,
a quick 10x return. Rate of return is what matters in
investing—not the multiple you get, but the multiple per year.
If a super-angel gets 10x in one year, that's a higher rate of
return than a VC could ever hope to get from a company that took 6
years to go public. To get the same rate of return, the VC would
have to get a multiple of 10^6—one million x. Even Google
didn't come close to that.
So I think at least some super-angels are looking for companies
that will get bought. That's the only rational explanation for
focusing on getting the right valuations, instead of the right
companies. And if so they'll be different to deal with than VCs.
They'll be tougher on valuations, but more accommodating if you want
to sell early.
Prognosis
Who will win, the super-angels or the VCs? I think the answer to
that is, some of each. They'll each become more like one another.
The super-angels will start to invest larger amounts, and the VCs
will gradually figure out ways to make more, smaller investments
faster. A decade from now the players will be hard to tell apart,
and there will probably be survivors from each group.
What does that mean for founders? One thing it means is that the
high valuations startups are presently getting may not last forever.
To the extent that valuations are being driven up by price-insensitive
VCs, they'll fall again if VCs become more like super-angels and
start to become more miserly about valuations. Fortunately if this
does happen it will take years.
The short term forecast is more competition between investors, which
is good news for you. The super-angels will try to undermine the
VCs by acting faster, and the VCs will try to undermine the
super-angels by driving up valuations. Which for founders will
result in the perfect combination: funding rounds that close fast,
with high valuations.
But remember that to get that combination, your startup will have
to appeal to both super-angels and VCs. If you don't seem like you
have the potential to go public, you won't be able to use VCs to
drive up the valuation of an angel round.
There is a danger of having VCs in an angel round: the so-called
signalling risk. If VCs are only doing it in the hope of investing
more later, what happens if they don't? That's a signal to everyone
else that they think you're lame.
How much should you worry about that? The seriousness of signalling
risk depends on how far along you are. If by the next time you
need to raise money, you have graphs showing rising revenue or
traffic month after month, you don't have to worry about any signals
your existing investors are sending. Your results will speak for
themselves.
[7]
Whereas if the next time you need to raise money you won't yet have
concrete results, you may need to think more about the message your
investors might send if they don't invest more. I'm not sure yet
how much you have to worry, because this whole phenomenon of VCs
doing angel investments is so new. But my instincts tell me you
don't have to worry much. Signalling risk smells like one of those
things founders worry about that's not a real problem. As a rule,
the only thing that can kill a good startup is the startup itself.
Startups hurt themselves way more often than competitors hurt them,
for example. I suspect signalling risk is in this category too.
One thing YC-funded startups have been doing to mitigate the risk
of taking money from VCs in angel rounds is not to take too much
from any one VC. Maybe that will help, if you have the luxury of
turning down money.
Fortunately, more and more startups will. After decades of competition
that could best be described as intramural, the startup funding
business is finally getting some real competition. That should
last several years at least, and maybe a lot longer. Unless there's
some huge market crash, the next couple years are going to be a
good time for startups to raise money. And that's exciting because
it means lots more startups will happen.
Notes
[1]
I've also heard them called "Mini-VCs" and "Micro-VCs." I
don't know which name will stick.
There were a couple predecessors. Ron Conway had angel funds
starting in the 1990s, and in some ways First Round Capital is closer to a
super-angel than a VC fund.
[2]
It wouldn't cut their overall returns tenfold, because investing
later would probably (a) cause them to lose less on investments
that failed, and (b) not allow them to get as large a percentage
of startups as they do now. So it's hard to predict precisely what
would happen to their returns.
[3]
The brand of an investor derives mostly from the success of
their portfolio companies. The top VCs thus have a big brand
advantage over the super-angels. They could make it self-perpetuating
if they used it to get all the best new startups. But I don't think
they'll be able to. To get all the best startups, you have to do
more than make them want you. You also have to want them; you have
to recognize them when you see them, and that's much harder.
Super-angels will snap up stars that VCs miss. And that will cause
the brand gap between the top VCs and the super-angels gradually
to erode.
[4]
Though in a traditional series A round VCs put two partners
on your board, there are signs now that VCs may begin to conserve
board seats by switching to what used to be considered an angel-round
board, consisting of two founders and one VC. Which is also to the
founders' advantage if it means they still control the company.
[5]
In a series A round, you usually have to give up more than
the actual amount of stock the VCs buy, because they insist you
dilute yourselves to set aside an "option pool" as well. I predict
this practice will gradually disappear though.
[6]
The best thing for founders, if they can get it, is a convertible
note with no valuation cap at all. In that case the money invested
in the angel round just converts into stock at the valuation of the
next round, no matter how large. Angels and super-angels tend not
to like uncapped notes. They have no idea how much of the company
they're buying. If the company does well and the valuation of the
next round is high, they may end up with only a sliver of it. So
by agreeing to uncapped notes, VCs who don't care about valuations
in angel rounds can make offers that super-angels hate to match.
[7]
Obviously signalling risk is also not a problem if you'll
never need to raise more money. But startups are often mistaken
about that.
Thanks to Sam Altman, John Bautista, Patrick Collison, James
Lindenbaum, Reid Hoffman, Jessica Livingston and Harj Taggar
for reading drafts
of this.
October 2010
(I wrote this for Forbes, who asked me to write something
about the qualities we look for in founders. In print they had to cut
the last item because they didn't have room.)
1. Determination
This has turned out to be the most important quality in startup
founders. We thought when we started Y Combinator that the most
important quality would be intelligence. That's the myth in the
Valley. And certainly you don't want founders to be stupid. But
as long as you're over a certain threshold of intelligence, what
matters most is determination. You're going to hit a lot of
obstacles. You can't be the sort of person who gets demoralized
easily.
Bill Clerico and Rich Aberman of WePay
are a good example. They're
doing a finance startup, which means endless negotiations with big,
bureaucratic companies. When you're starting a startup that depends
on deals with big companies to exist, it often feels like they're
trying to ignore you out of existence. But when Bill Clerico starts
calling you, you may as well do what he asks, because he is not
going away.
2. Flexibility
You do not however want the sort of determination implied by phrases
like "don't give up on your dreams." The world of startups is so
unpredictable that you need to be able to modify your dreams on the
fly. The best metaphor I've found for the combination of determination
and flexibility you need is a running back.
He's determined to get
downfield, but at any given moment he may need to go sideways or
even backwards to get there.
The current record holder for flexibility may be Daniel Gross of
Greplin. He applied to YC with
some bad ecommerce idea. We told
him we'd fund him if he did something else. He thought for a second,
and said ok. He then went through two more ideas before settling
on Greplin. He'd only been working on it for a couple days when
he presented to investors at Demo Day, but he got a lot of interest.
He always seems to land on his feet.
3. Imagination
Intelligence does matter a lot of course. It seems like the type
that matters most is imagination. It's not so important to be able
to solve predefined problems quickly as to be able to come up with
surprising new ideas. In the startup world, most good ideas
seem
bad initially. If they were obviously good, someone would already
be doing them. So you need the kind of intelligence that produces
ideas with just the right level of craziness.
Airbnb is that kind of idea.
In fact, when we funded Airbnb, we
thought it was too crazy. We couldn't believe large numbers of
people would want to stay in other people's places. We funded them
because we liked the founders so much. As soon as we heard they'd
been supporting themselves by selling Obama and McCain branded
breakfast cereal, they were in. And it turned out the idea was on
the right side of crazy after all.
4. Naughtiness
Though the most successful founders are usually good people, they
tend to have a piratical gleam in their eye. They're not Goody
Two-Shoes type good. Morally, they care about getting the big
questions right, but not about observing proprieties. That's why
I'd use the word naughty rather than evil. They delight in
breaking
rules, but not rules that matter. This quality may be redundant
though; it may be implied by imagination.
Sam Altman of Loopt
is one of the most successful alumni, so we
asked him what question we could put on the Y Combinator application
that would help us discover more people like him. He said to ask
about a time when they'd hacked something to their advantage—hacked in the sense of beating the system, not breaking into
computers. It has become one of the questions we pay most attention
to when judging applications.
5. Friendship
Empirically it seems to be hard to start a startup with just
one
founder. Most of the big successes have two or three. And the
relationship between the founders has to be strong. They must
genuinely like one another, and work well together. Startups do
to the relationship between the founders what a dog does to a sock:
if it can be pulled apart, it will be.
Emmett Shear and Justin Kan of Justin.tv
are a good example of close
friends who work well together. They've known each other since
second grade. They can practically read one another's minds. I'm
sure they argue, like all founders, but I have never once sensed
any unresolved tension between them.
Thanks to Jessica Livingston and Chris Steiner for reading drafts of this.
December 2010
Someone we funded is talking to VCs now, and asked me how common
it was for a startup's founders to retain control of the board after
a series A round. He said VCs told him this almost never happened.
Ten years ago that was true. In the past, founders rarely kept
control of the board through a series A. The traditional series A
board consisted of two founders, two VCs, and one independent member.
More recently the recipe is often one founder, one VC, and one
independent. In either case the founders lose their majority.
But not always. Mark Zuckerberg kept control of Facebook's board
through the series A and still has it today. Mark Pincus has kept
control of Zynga's too. But are these just outliers? How common
is it for founders to keep control after an A round? I'd heard of
several cases among the companies we've funded, but I wasn't sure
how many there were, so I emailed the ycfounders list.
The replies surprised me. In a dozen companies we've funded, the
founders still had a majority of the board seats after the series
A round.
I feel like we're at a tipping point here. A lot of VCs still act
as if founders retaining board control after a series A is unheard-of.
A lot of them try to make you feel bad if you even ask — as if
you're a noob or a control freak for wanting such a thing. But the
founders I heard from aren't noobs or control freaks. Or if they
are, they are, like Mark Zuckerberg, the kind of noobs and control
freaks VCs should be trying to fund more of.
Founders retaining control after a series A is clearly heard-of.
And barring financial catastrophe, I think in the coming year it
will become the norm.
Control of a company is a more complicated matter than simply
outvoting other parties in board meetings. Investors usually get
vetos over certain big decisions, like selling the company, regardless
of how many board seats they have. And board votes are rarely
split. Matters are decided in the discussion preceding the vote,
not in the vote itself, which is usually unanimous. But if opinion
is divided in such discussions, the side that knows it would lose
in a vote will tend to be less insistent. That's what board control
means in practice. You don't simply get to do whatever you want;
the board still has to act in the interest of the shareholders; but
if you have a majority of board seats, then your opinion about
what's in the interest of the shareholders will tend to prevail.
So while board control is not total control, it's not imaginary
either. There's inevitably a difference in how things feel within
the company. Which means if it becomes the norm for founders to
retain board control after a series A, that will change the way
things feel in the whole startup world.
The switch to the new norm may be surprisingly fast, because the
startups that can retain control tend to be the best ones. They're
the ones that set the trends, both for other startups and for VCs.
A lot of the reason VCs are harsh when negotiating with startups
is that they're embarrassed to go back to their partners looking
like they got beaten. When they sign a termsheet, they want to be
able to brag about the good terms they got. A lot of them don't
care that much personally about whether founders keep board control.
They just don't want to seem like they had to make concessions.
Which means if letting the founders keep control stops being perceived
as a concession, it will rapidly become much more common.
Like a lot of changes that have been forced on VCs, this change
won't turn out to be as big a problem as they might think. VCs will
still be able to convince; they just won't be able to compel. And
the startups where they have to resort to compulsion are not the
ones that matter anyway. VCs make most of their money from a few
big hits, and those aren't them.
Knowing that founders will keep control of the board may even help
VCs pick better. If they know they can't fire the founders, they'll
have to choose founders they can trust. And that's who they should
have been choosing all along.
Thanks to Sam Altman, John Bautista, Trevor Blackwell, Paul
Buchheit, Brian Chesky, Bill Clerico, Patrick Collison, Adam
Goldstein, James Lindenbaum, Jessica Livingston, and Fred Wilson
for reading drafts of this.
from: Paul Graham to: Fred Wilson, AirBedAndBreakfast Founders date: Fri, Jan 23, 2009 at 11:42 AM subject: meet the airbeds
One of the startups from the batch that just started, AirbedAndBreakfast, is in NYC right now meeting their users. (NYC is their biggest market.) I'd recommend meeting them if your schedule allows.
I'd been thinking to myself that though these guys were going to do really well, I should introduce them to angels, because VCs would never go for it. But then I thought maybe I should give you more credit. You'll certainly like meeting them. Be sure to ask about how they funded themselves with breakfast cereal.
There's no reason this couldn't be as big as Ebay. And this team is the right one to do it.
--pg
from: Brian Chesky to: Paul Graham cc: Nathan Blecharczyk, Joe Gebbia date: Fri, Jan 23, 2009 at 11:40 AM subject: Re: meet the airbeds
PG,
Thanks for the intro!
Brian
from: Paul Graham to: Brian Chesky cc: Nathan Blecharczyk, Joe Gebbia date: Fri, Jan 23, 2009 at 12:38 PM subject: Re: meet the airbeds
It's a longshot, at this stage, but if there was any VC who'd get you guys, it would be Fred. He is the least suburban-golf-playing VC I know.
He likes to observe startups for a while before acting, so don't be bummed if he seems ambivalent.
--pg
from: Fred Wilson to: Paul Graham, date: Sun, Jan 25, 2009 at 5:28 PM subject: Re: meet the airbeds
Thanks Paul
We are having a bit of a debate inside our partnership about the airbed concept. We'll finish that debate tomorrow in our weekly meeting and get back to you with our thoughts
Thanks
Fred
from: Paul Graham to: Fred Wilson date: Sun, Jan 25, 2009 at 10:48 PM subject: Re: meet the airbeds
I'd recommend having the debate after meeting them instead of before. We had big doubts about this idea, but they vanished on meeting the guys.
from: Fred Wilson to: Paul Graham date: Mon, Jan 26, 2009 at 11:08 AM subject: RE: meet the airbeds
We are still very suspect of this idea but will take a meeting as you suggest
Thanks
fred
from: Fred Wilson to: Paul Graham, AirBedAndBreakfast Founders date: Mon, Jan 26, 2009 at 11:09 AM subject: RE: meet the airbeds
Airbed team -
Are you still in NYC?
We'd like to meet if you are
Thanks
fred
from: Paul Graham to: Fred Wilson date: Mon, Jan 26, 2009 at 1:42 PM subject: Re: meet the airbeds
Ideas can morph. Practically every really big startup could say, five years later, "believe it or not, we started out doing ___." It just seemed a very good sign to me that these guys were actually on the ground in NYC hunting down (and understanding) their users. On top of several previous good signs.
--pg
from: Fred Wilson to: Paul Graham date: Sun, Feb 1, 2009 at 7:15 AM subject: Re: meet the airbeds
It's interesting
Our two junior team members were enthusiastic
The three "old guys" didn't get it
from: Paul Graham to: Fred Wilson date: Mon, Feb 9, 2009 at 5:58 PM subject: airbnb
The Airbeds just won the first poll among all the YC startups in their batch by a landslide. In the past this has not been a 100% indicator of success (if only anything were) but much better than random.
--pg
from: Fred Wilson to: Paul Graham date: Fri, Feb 13, 2009 at 5:29 PM subject: Re: airbnb
I met them today
They have an interesting business
I'm just not sure how big it's going to be
fred
from: Paul Graham to: Fred Wilson date: Sat, Feb 14, 2009 at 9:50 AM subject: Re: airbnb
Did they explain the long-term goal of being the market in accommodation the way eBay is in stuff? That seems like it would be huge. Hotels now are like airlines in the 1970s before they figured out how to increase their load factors.
from: Fred Wilson to: Paul Graham date: Tue, Feb 17, 2009 at 2:05 PM subject: Re: airbnb
They did but I am not sure I buy that
ABNB reminds me of Etsy in that it facilitates real commerce in a marketplace model directly between two people
So I think it can scale all the way to the bed and breakfast market
But I am not sure they can take on the hotel market
I could be wrong
But even so, if you include short term room rental, second home rental, bed and breakfast, and other similar classes of accommodations, you get to a pretty big opportunity
fred
from: Paul Graham to: Fred Wilson date: Wed, Feb 18, 2009 at 12:21 AM subject: Re: airbnb
So invest in them! They're very capital efficient. They would make an investor's money go a long way.
It's also counter-cyclical. They just arrived back from NYC, and when I asked them what was the most significant thing they'd observed, it was how many of their users actually needed to do these rentals to pay their rents.
--pg
from: Fred Wilson to: Paul Graham date: Wed, Feb 18, 2009 at 2:21 AM subject: Re: airbnb
There's a lot to like
I've done a few things, like intro it to my friends at Foundry who were investors in Service Metrics and understand this model
I am also talking to my friend Mark Pincus who had an idea like this a few years ago.
So we are working on it
Thanks for the lead
Fred
from: Paul Graham to: Fred Wilson date: Fri, Feb 20, 2009 at 10:00 PM subject: airbnb already spreading to pros
I know you're skeptical they'll ever get hotels, but there's a continuum between private sofas and hotel rooms, and they just moved one step further along it.
[link to an airbnb user]
This is after only a few months. I bet you they will get hotels eventually. It will start with small ones. Just wait till all the 10-room pensiones in Rome discover this site. And once it spreads to hotels, where is the point (in size of chain) at which it stops? Once something becomes a big marketplace, you ignore it at your peril.
--pg
from: Fred Wilson to: Paul Graham date: Sat, Feb 21, 2009 at 4:26 AM subject: Re: airbnb already spreading to pros
That's true. It's also true that there are quite a few marketplaces out there that serve this same market
If you look at many of the people who list at ABNB, they list elsewhere too
I am not negative on this one, I am interested, but we are still in the gathering data phase.
fred
No first use of software patents against companies with less than 25 people.I've deliberately traded precision for brevity. The patent pledge is not legally binding. It's like Google's "Don't be evil." They don't define what evil is, but by publicly saying that, they're saying they're willing to be held to a standard that, say, Altria is not. And though constraining, "Don't be evil" has been good for Google. Technology companies win by attracting the most productive people, and the most productive people are attracted to employers who hold themselves to a higher standard than the law requires. [1]
October 2011
If you look at a list of US cities sorted by population, the number
of successful startups per capita varies by orders of magnitude.
Somehow it's as if most places were sprayed with startupicide.
I wondered about this for years. I could see the average town was
like a roach motel for startup ambitions: smart, ambitious people
went in, but no startups came out. But I was never able to figure
out exactly what happened inside the motel—exactly what was
killing all the potential startups.
[1]
A couple weeks ago I finally figured it out. I was framing the
question wrong. The problem is not that most towns kill startups.
It's that death is the default for startups,
and most towns don't save them. Instead of thinking of most places
as being sprayed with startupicide, it's more accurate to think of
startups as all being poisoned, and a few places being sprayed with
the antidote.
Startups in other places are just doing what startups naturally do:
fail. The real question is, what's saving startups in places
like Silicon Valley?
[2]
Environment
I think there are two components to the antidote: being in a place
where startups are the cool thing to do, and chance meetings with
people who can help you. And what drives them both is the number
of startup people around you.
The first component is particularly helpful in the first stage of
a startup's life, when you go from merely having an interest in
starting a company to actually doing it. It's quite a leap to start
a startup. It's an unusual thing to do. But in Silicon Valley it
seems normal.
[3]
In most places, if you start a startup, people treat you as if
you're unemployed. People in the Valley aren't automatically
impressed with you just because you're starting a company, but they
pay attention. Anyone who's been here any amount of time knows not
to default to skepticism, no matter how inexperienced you seem or
how unpromising your idea sounds at first, because they've all seen
inexperienced founders with unpromising sounding ideas who a few
years later were billionaires.
Having people around you care about what you're doing is an
extraordinarily powerful force. Even the
most willful people are susceptible to it. About a year after we
started Y Combinator I said something to a partner at a well known
VC firm that gave him the (mistaken) impression I was considering
starting another startup. He responded so eagerly that for about
half a second I found myself considering doing it.
In most other cities, the prospect of starting a startup just doesn't
seem real. In the Valley it's not only real but fashionable. That
no doubt causes a lot of people to start startups who shouldn't.
But I think that's ok. Few people are suited to running a startup,
and it's very hard to predict beforehand which are (as I know all
too well from being in the business of trying to predict beforehand),
so lots of people starting startups who shouldn't is probably the
optimal state of affairs. As long as you're at a point in your
life when you can bear the risk of failure, the best way to find
out if you're suited to running a startup is to try
it.
Chance
The second component of the antidote is chance meetings with people
who can help you. This force works in both phases: both in the
transition from the desire to start a startup to starting one, and
the transition from starting a company to succeeding. The power
of chance meetings is more variable than people around you caring
about startups, which is like a sort of background radiation that
affects everyone equally, but at its strongest it is far stronger.
Chance meetings produce miracles to compensate for the disasters
that characteristically befall startups. In the Valley, terrible
things happen to startups all the time, just like they do to startups
everywhere. The reason startups are more likely to make it here
is that great things happen to them too. In the Valley, lightning
has a sign bit.
For example, you start a site for college students and you decide
to move to the Valley for the summer to work on it. And then on a
random suburban street in Palo Alto you happen to run into Sean
Parker, who understands the domain really well because he started
a similar startup himself, and also knows all the investors. And
moreover has advanced views, for 2004, on founders retaining control of their companies.
You can't say precisely what the miracle will be, or even for sure
that one will happen. The best one can say is: if you're in a
startup hub, unexpected good things will probably happen to you,
especially if you deserve them.
I bet this is true even for startups we fund. Even with us working
to make things happen for them on purpose rather than by accident,
the frequency of helpful chance meetings in the Valley is so high
that it's still a significant increment on what we can deliver.
Chance meetings play a role like the role relaxation plays in having
ideas. Most people have had the experience of working hard on some
problem, not being able to solve it, giving up and going to bed,
and then thinking of the answer in the shower in the morning. What
makes the answer appear is letting your thoughts drift a bit—and thus drift off the wrong
path you'd been pursuing last night and onto the right one adjacent
to it.
Chance meetings let your acquaintance drift in the same way taking
a shower lets your thoughts drift. The critical thing in both cases
is that they drift just the right amount. The meeting between Larry
Page and Sergey Brin was a good example. They let their acquaintance
drift, but only a little; they were both meeting someone they had
a lot in common with.
For Larry Page the most important component of the antidote was
Sergey Brin, and vice versa. The antidote is
people. It's not the
physical infrastructure of Silicon Valley that makes it work, or
the weather, or anything like that. Those helped get it started,
but now that the reaction is self-sustaining what drives it is the
people.
Many observers have noticed that one of the most distinctive things
about startup hubs is the degree to which people help one another
out, with no expectation of getting anything in return. I'm not
sure why this is so. Perhaps it's because startups are less of a
zero sum game than most types of business; they are rarely killed
by competitors. Or perhaps it's because so many startup founders
have backgrounds in the sciences, where collaboration is encouraged.
A large part of YC's function is to accelerate that process. We're
a sort of Valley within the Valley, where the density of people
working on startups and their willingness to help one another are
both artificially amplified.
Numbers
Both components of the antidote—an environment that encourages
startups, and chance meetings with people who help you—are
driven by the same underlying cause: the number of startup people
around you. To make a startup hub, you need a lot of people
interested in startups.
There are three reasons. The first, obviously, is that if you don't
have enough density, the chance meetings don't happen.
[4]
The second is that different startups need such different things, so
you need a lot of people to supply each startup with what they need
most. Sean Parker was exactly what Facebook needed in 2004. Another
startup might have needed a database guy, or someone with connections
in the movie business.
This is one of the reasons we fund such a large number of companies,
incidentally. The bigger the community, the greater the chance it
will contain the person who has that one thing you need most.
The third reason you need a lot of people to make a startup hub is
that once you have enough people interested in the same problem,
they start to set the social norms. And it is a particularly
valuable thing when the atmosphere around you encourages you to do
something that would otherwise seem too ambitious. In most places
the atmosphere pulls you back toward the mean.
I flew into the Bay Area a few days ago. I notice this every time
I fly over the Valley: somehow you can sense something is going on.
Obviously you can sense prosperity in how well kept a
place looks. But there are different kinds of prosperity. Silicon
Valley doesn't look like Boston, or New York, or LA, or DC. I tried
asking myself what word I'd use to describe the feeling the Valley
radiated, and the word that came to mind was optimism.
Notes
[1]
I'm not saying it's impossible to succeed in a city with few
other startups, just harder. If you're sufficiently good at
generating your own morale, you can survive without external
encouragement. Wufoo was based in Tampa and they succeeded. But
the Wufoos are exceptionally disciplined.
[2]
Incidentally, this phenomenon is not limited to startups. Most
unusual ambitions fail, unless the person who has them manages to
find the right sort of community.
[3]
Starting a company is common, but starting a startup is rare.
I've talked about the distinction between the two elsewhere, but
essentially a startup is a new business designed for scale. Most
new businesses are service businesses and except in rare cases those
don't scale.
[4]
As I was writing this, I had a demonstration of the density of
startup people in the Valley. Jessica and I bicycled to University
Ave in Palo Alto to have lunch at the fabulous Oren's Hummus. As
we walked in, we met Charlie Cheever sitting near the door. Selina
Tobaccowala stopped to say hello on her way out. Then Josh Wilson
came in to pick up a take out order. After lunch we went to get
frozen yogurt. On the way we met Rajat Suri. When we got to the
yogurt place, we found Dave Shen there, and as we walked out we ran
into Yuri Sagalov. We walked with him for a block or so and we ran
into Muzzammil Zaveri, and then a block later we met Aydin Senkut.
This is everyday life in Palo Alto. I wasn't trying to meet people;
I was just having lunch. And I'm sure for every startup founder
or investor I saw that I knew, there were 5 more I didn't. If Ron
Conway had been with us he would have met 30 people he knew.
Thanks to Sam Altman, Paul Buchheit, Jessica Livingston, and
Harj Taggar for reading drafts of this.
January 2012
There are great startup ideas lying around unexploited right under
our noses. One reason we don't see them is a phenomenon I call
schlep blindness. Schlep was originally a Yiddish word but has
passed into general use in the US. It means a tedious, unpleasant
task.
No one likes schleps, but hackers especially dislike them.
Most hackers who start startups wish they could do it by just writing
some clever software, putting it on a server somewhere, and watching
the money roll in—without ever having to talk to users, or negotiate
with other companies, or deal with other people's broken code.
Maybe that's possible, but I haven't seen it.
One of the many things we do at Y Combinator is teach hackers about
the inevitability of schleps. No, you can't start a startup by
just writing code. I remember going through this realization myself.
There was a point in 1995 when I was still trying to convince myself
I could start a company by just writing code. But I soon learned
from experience that schleps are not merely inevitable, but pretty
much what business consists of. A company is defined by the schleps
it will undertake. And schleps should be dealt with the same way
you'd deal with a cold swimming pool: just jump in. Which is not
to say you should seek out unpleasant work per se, but that you
should never shrink from it if it's on the path to something great.
The most dangerous thing about our dislike of schleps is that much
of it is unconscious. Your unconscious won't even let you see ideas
that involve painful schleps. That's schlep blindness.
The phenomenon isn't limited to startups. Most people don't
consciously decide not to be in as good physical shape as Olympic
athletes, for example. Their unconscious mind decides for them,
shrinking from the work involved.
The most striking example I know of schlep blindness is
Stripe, or
rather Stripe's idea. For over a decade, every hacker who'd ever
had to process payments online knew how painful the experience was.
Thousands of people must have known about this problem. And yet
when they started startups, they decided to build recipe sites, or
aggregators for local events. Why? Why work on problems few care
much about and no one will pay for, when you could fix one of the
most important components of the world's infrastructure? Because
schlep blindness prevented people from even considering the idea
of fixing payments.
Probably no one who applied to Y Combinator to work on a recipe
site began by asking "should we fix payments, or build a recipe
site?" and chose the recipe site. Though the idea of fixing payments
was right there in plain sight, they never saw it, because their
unconscious mind shrank from the complications involved. You'd
have to make deals with banks. How do you do that? Plus you're
moving money, so you're going to have to deal with fraud, and people
trying to break into your servers. Plus there are probably all
sorts of regulations to comply with. It's a lot more intimidating
to start a startup like this than a recipe site.
That scariness makes ambitious ideas doubly valuable. In addition
to their intrinsic value, they're like undervalued stocks in the
sense that there's less demand for them among founders. If you
pick an ambitious idea, you'll have less competition, because
everyone else will have been frightened off by the challenges
involved. (This is also true of starting a startup generally.)
How do you overcome schlep blindness? Frankly, the most valuable
antidote to schlep blindness is probably ignorance. Most successful
founders would probably say that if they'd known when they were
starting their company about the obstacles they'd have to overcome,
they might never have started it. Maybe that's one reason the most
successful startups of all so often have young founders.
In practice the founders grow with the problems. But no one seems
able to foresee that, not even older, more experienced founders.
So the reason younger founders have an advantage is that they make
two mistakes that cancel each other out. They don't know how much
they can grow, but they also don't know how much they'll need to.
Older founders only make the first mistake.
Ignorance can't solve everything though. Some ideas so obviously
entail alarming schleps that anyone can see them. How do you see
ideas like that? The trick I recommend is to take yourself out of
the picture. Instead of asking "what problem should I solve?" ask
"what problem do I wish someone else would solve for me?" If someone
who had to process payments before Stripe had tried asking that,
Stripe would have been one of the first things they wished for.
It's too late now to be Stripe, but there's plenty still broken in
the world, if you know how to see it.
Thanks to Sam Altman, Paul Buchheit, Patrick Collison,
Aaron Iba, Jessica Livingston, Emmett Shear, and Harj Taggar
for reading drafts of this.
January 2012
A year ago I noticed a pattern in the least successful startups
we'd funded: they all seemed hard to talk to. It felt as if there
was some kind of wall between us. I could never quite tell if they
understood what I was saying.
This caught my attention because earlier we'd noticed a pattern
among the most successful startups, and it seemed to hinge on a
different quality. We found the startups that did best were the
ones with the sort of founders about whom we'd say "they can take
care of themselves." The startups that do best are fire-and-forget
in the sense that all you have to do is give them a lead, and they'll
close it, whatever type of lead it is. When they're raising money,
for example, you can do the initial intros knowing that if you
wanted to you could stop thinking about it at that point. You won't
have to babysit the round to make sure it happens. That type of
founder is going to come back with the money; the only question is
how much on what terms.
It seemed odd that the outliers at the two ends of the spectrum
could be detected by what appeared to be unrelated tests. You'd
expect that if the founders at one end were distinguished by the
presence of quality x, at the other end they'd be distinguished by
lack of x. Was there some kind of inverse relation between
resourcefulness and being hard to talk to?
It turns out there is, and the key to the mystery is the old adage
"a word to the wise is sufficient." Because this phrase is not
only overused, but overused in an indirect way (by prepending the
subject to some advice), most people who've heard it don't know
what it means. What it means is that if someone is wise, all you
have to do is say one word to them, and they'll understand immediately.
You don't have to explain in detail; they'll chase down all the
implications.
In much the same way that all you have to do is give the right sort
of founder a one line intro to a VC, and he'll chase down the money.
That's the connection. Understanding all the implications — even the
inconvenient implications — of what someone tells you is a subset of
resourcefulness. It's conversational resourcefulness.
Like real world resourcefulness, conversational resourcefulness
often means doing things you don't want to. Chasing down all the
implications of what's said to you can sometimes lead to uncomfortable
conclusions. The best word to describe the failure to do so is
probably "denial," though that seems a bit too narrow. A better
way to describe the situation would be to say that the unsuccessful
founders had the sort of conservatism that comes from weakness.
They traversed idea space as gingerly as a very old person
traverses the physical world.
[1]
The unsuccessful founders weren't stupid. Intellectually they
were as capable as
the successful founders of following all the implications of what
one said to them. They just weren't eager to.
So being hard to talk to was not what was killing the
unsuccessful startups. It
was a sign of an underlying lack of resourcefulness. That's what
was killing them. As well as
failing to chase down the implications of what was said to them,
the unsuccessful founders would also fail to chase down funding,
and users, and sources of new ideas. But the most immediate evidence
I had that something was amiss was that I couldn't talk to them.
Notes
[1]
A YC partner wrote:
My feeling with the bad groups is that coming into office hours,
they've already decided what they're going to do and everything I
say is being put through an internal process in their heads, which
either desperately tries to munge what I've said into something
that conforms with their decision or just outright dismisses it and
creates a rationalization for doing so. They may not even be conscious
of this process but that's what I think is happening when you say
something to bad groups and they have that glazed over look. I don't
think it's confusion or lack of understanding per se, it's this
internal process at work.
With the good groups, you can tell that everything you say is being
looked at with fresh eyes and even if it's dismissed, it's because
of some logical reason e.g. "we already tried that" or "from speaking
to our users that isn't what they'd like," etc. Those groups never
have that glazed over look.
Thanks to Sam Altman, Patrick Collison, Aaron Iba, Jessica Livingston,
Robert Morris, Harj Taggar, and Garry Tan for reading drafts of
this.
March 2012
One of the more surprising things I've noticed while working
on Y Combinator is how frightening the most ambitious startup
ideas are. In this essay I'm going to demonstrate
this phenomenon by describing some. Any one of them
could make you a billionaire. That might sound like an attractive
prospect, and yet when I describe these ideas you may
notice you find yourself shrinking away from them.
Don't worry, it's not a sign of weakness. Arguably it's a sign of
sanity. The biggest startup ideas are terrifying. And not just
because they'd be a lot of work. The biggest ideas seem to threaten
your identity: you wonder if you'd have enough ambition to carry
them through.
There's a scene in Being John Malkovich where the nerdy hero
encounters a very attractive, sophisticated woman. She says to
him:
Here's the thing: If you ever got me, you wouldn't have a clue what to do with me.That's what these ideas say to us.
On March 11 2005, Jessica and I were walking home from dinner in Harvard Square. Jessica was working at an investment bank at the time, but she didn't like it much, so she had interviewed for a job as director of marketing at a Boston VC fund. The VC fund was doing what now seems a comically familiar thing for a VC fund to do: taking a long time to make up their mind. Meanwhile I had been telling Jessica all the things they should change about the VC business � essentially the ideas now underlying Y Combinator: investors should be making more, smaller investments, they should be funding hackers instead of suits, they should be willing to fund younger founders, etc.
At the time I had been thinking about doing some angel investing. I had just given a talk to the undergraduate computer club at Harvard about how to start a startup, and it hit me afterward that although I had always meant to do angel investing, 7 years had now passed since I got enough money to do it, and I still hadn't started. I had also been thinking about ways to work with Robert Morris and Trevor Blackwell again. A few hours before I had sent them an email trying to figure out what we could do together.
Between Harvard Square and my house the idea gelled. We'd start our own investment firm and Jessica could work for that instead. As we turned onto Walker Street we decided to do it. I agreed to put $100k into the new fund and Jessica agreed to quit her job to work for it. Over the next couple days I recruited Robert and Trevor, who put in another $50k each. So YC started with $200k.
Jessica was so happy to be able to quit her job and start her own company that I took her picture when we got home.
The company wasn't called Y Combinator yet. At first we called it Cambridge Seed. But that name never saw the light of day, because by the time we announced it a few days later, we'd changed the name to Y Combinator. We realized early on that what we were doing could be national in scope and we didn't want a name that tied us to one place.
Initially we only had part of the idea. We were going to do seed funding with standardized terms. Before YC, seed funding was very haphazard. You'd get that first $10k from your friend's rich uncle. The deal terms were often a disaster; often neither the investor nor the founders nor the lawyer knew what the documents should look like. Facebook's early history as a Florida LLC shows how random things could be in those days. We were going to be something there had not been before: a standard source of seed funding.
We modelled YC on the seed funding we ourselves had taken when we started Viaweb. We started Viaweb with $10k we got from our friend Julian Weber, the husband of Idelle Weber, whose painting class I took as a grad student at Harvard. Julian knew about business, but you would not describe him as a suit. Among other things he'd been president of the National Lampoon. He was also a lawyer, and got all our paperwork set up properly. In return for $10k, getting us set up as a company, teaching us what business was about, and remaining calm in times of crisis, Julian got 10% of Viaweb. I remember thinking once what a good deal Julian got. And then a second later I realized that without Julian, Viaweb would never have made it. So even though it was a good deal for him, it was a good deal for us too. That's why I knew there was room for something like Y Combinator.
Initially we didn't have what turned out to be the most important idea: funding startups synchronously, instead of asynchronously as it had always been done before. Or rather we had the idea, but we didn't realize its significance. We decided very early that the first thing we'd do would be to fund a bunch of startups over the coming summer. But we didn't realize initially that this would be the way we'd do all our investing. The reason we began by funding a bunch of startups at once was not that we thought it would be a better way to fund startups, but simply because we wanted to learn how to be angel investors, and a summer program for undergrads seemed the fastest way to do it. No one takes summer jobs that seriously. The opportunity cost for a bunch of undergrads to spend a summer working on startups was low enough that we wouldn't feel guilty encouraging them to do it.
We knew students would already be making plans for the summer, so we did what we're always telling startups to do: we launched fast. Here are the initial announcement and description of what was at the time called the Summer Founders Program.
We got lucky in that the length and structure of a summer program turns out to be perfect for what we do. The structure of the YC cycle is still almost identical to what it was that first summer.
We also got lucky in who the first batch of founders were. We never expected to make any money from that first batch. We thought of the money we were investing as a combination of an educational expense and a charitable donation. But the founders in the first batch turned out to be surprisingly good. And great people too. We're still friends with a lot of them today.
It's hard for people to realize now how inconsequential YC seemed at the time. I can't blame people who didn't take us seriously, because we ourselves didn't take that first summer program seriously in the very beginning. But as the summer progressed we were increasingly impressed by how well the startups were doing. Other people started to be impressed too. Jessica and I invented a term, "the Y Combinator effect," to describe the moment when the realization hit someone that YC was not totally lame. When people came to YC to speak at the dinners that first summer, they came in the spirit of someone coming to address a Boy Scout troop. By the time they left the building they were all saying some variant of "Wow, these companies might actually succeed."
Now YC is well enough known that people are no longer surprised when the companies we fund are legit, but it took a while for reputation to catch up with reality. That's one of the reasons we especially like funding ideas that might be dismissed as "toys" � because YC itself was dismissed as one initially.
When we saw how well it worked to fund companies synchronously, we decided we'd keep doing that. We'd fund two batches of startups a year.
We funded the second batch in Silicon Valley. That was a last minute decision. In retrospect I think what pushed me over the edge was going to Foo Camp that fall. The density of startup people in the Bay Area was so much greater than in Boston, and the weather was so nice. I remembered that from living there in the 90s. Plus I didn't want someone else to copy us and describe it as the Y Combinator of Silicon Valley. I wanted YC to be the Y Combinator of Silicon Valley. So doing the winter batch in California seemed like one of those rare cases where the self-indulgent choice and the ambitious one were the same.
If we'd had enough time to do what we wanted, Y Combinator would
have been in Berkeley. That was our favorite part of the Bay Area.
But we didn't have time to get a building in Berkeley. We didn't
have time to get our own building anywhere. The only way to get
enough space in time was to convince Trevor to let us take over
part of his (as it then seemed) giant building in Mountain View.
Yet again we lucked out, because Mountain View turned out to be the
ideal place to put something like YC. But even then we barely made
it. The first dinner in California, we had to warn all the founders
not to touch the walls, because the paint was still wet.
Don't ignore your dreams; don't work too much; say what you think; cultivate friendships; be happy.which I then put at the top of the file I use as a todo list.
September 2012
I've done several types of work over the years but I don't know
another as counterintuitive as startup investing.
The two most important things to understand about startup investing,
as a business, are (1) that effectively all the returns are
concentrated in a few big winners, and (2) that the best ideas look
initially like bad ideas.
The first rule I knew intellectually, but didn't really grasp till
it happened to us. The total value of the companies we've funded
is around 10 billion, give or take a few. But just two companies,
Dropbox and Airbnb, account for about three quarters of it.
In startups, the big winners are big to a degree that violates our
expectations about variation. I don't know whether these expectations
are innate or learned, but whatever the cause, we are just not
prepared for the 1000x variation in outcomes that one finds in
startup investing.
That yields all sorts of strange consequences. For example, in
purely financial terms, there is probably at most one company in
each YC batch that will have a significant effect on our returns,
and the rest are just a cost of doing business.
[1]
I haven't
really assimilated that fact, partly because it's so counterintuitive,
and partly because we're not doing this just for financial reasons;
YC would be a pretty lonely place if we only had one company per
batch. And yet it's true.
To succeed in a domain that violates your intuitions, you need to
be able to turn them off the way a pilot does when flying through
clouds.
[2]
You need to do what you know intellectually to be
right, even though it feels wrong.
It's a constant battle for us. It's hard to make ourselves take
enough risks. When you interview a startup and think "they seem
likely to succeed," it's hard not to fund them. And yet, financially
at least, there is only one kind of success: they're either going
to be one of the really big winners or not, and if not it doesn't
matter whether you fund them, because even if they succeed the
effect on your returns will be insignificant. In the same day of
interviews you might meet some smart 19 year olds who aren't even
sure what they want to work on. Their chances of succeeding seem
small. But again, it's not their chances of succeeding that matter
but their chances of succeeding really big. The probability that
any group will succeed really big is microscopically small, but the
probability that those 19 year olds will might be higher than that
of the other, safer group.
The probability that a startup will make it big is not simply a
constant fraction of the probability that they will succeed at all.
If it were, you could fund everyone who seemed likely to succeed
at all, and you'd get that fraction of big hits. Unfortunately
picking winners is harder than that. You have to ignore the elephant
in front of you, the likelihood they'll succeed, and focus instead
on the separate and almost invisibly intangible question of whether
they'll succeed really big.
Harder
That's made harder by the fact that the best startup ideas seem at
first like bad ideas. I've written about this before: if a good
idea were obviously good, someone else would already have done it.
So the most successful founders tend to work on ideas that few
beside them realize are good. Which is not that far from a description
of insanity, till you reach the point where you see results.
The first time Peter Thiel spoke at YC he drew a Venn diagram that
illustrates the situation perfectly. He drew two intersecting
circles, one labelled "seems like a bad idea" and the other "is a
good idea." The intersection is the sweet spot for startups.
This concept is a simple one and yet seeing it as a Venn diagram
is illuminating. It reminds you that there is an intersection—that
there are good ideas that seem bad. It also reminds you that the
vast majority of ideas that seem bad are bad.
The fact that the best ideas seem like bad ideas makes it even
harder to recognize the big winners. It means the probability of
a startup making it really big is not merely not a constant fraction
of the probability that it will succeed, but that the startups with
a high probability of the former will seem to have a disproportionately
low probability of the latter.
History tends to get rewritten by big successes, so that in retrospect
it seems obvious they were going to make it big. For that reason
one of my most valuable memories is how lame Facebook sounded to
me when I first heard about it. A site for college students to
waste time? It seemed the perfect bad idea: a site (1) for a niche
market (2) with no money (3) to do something that didn't matter.
One could have described Microsoft and Apple in exactly the same
terms.
[3]
Harder Still
Wait, it gets worse. You not only have to solve this hard problem,
but you have to do it with no indication of whether you're succeeding.
When you pick a big winner, you won't know it for two years.
Meanwhile, the one thing you can measure is dangerously
misleading. The one thing we can track precisely is how well the
startups in each batch do at fundraising after Demo Day. But we
know that's the wrong metric. There's no correlation between the
percentage of startups that raise money and the metric that does
matter financially, whether that batch of startups contains a big
winner or not.
Except an inverse one. That's the scary thing: fundraising is not
merely a useless metric, but positively misleading. We're in a
business where we need to pick unpromising-looking outliers, and
the huge scale of the successes means we can afford to spread our
net very widely. The big winners could generate 10,000x returns.
That means for each big winner we could pick a thousand companies
that returned nothing and still end up 10x ahead.
If we ever got to the point where 100% of the startups we funded
were able to raise money after Demo Day, it would almost certainly
mean we were being too conservative.
[4]
It takes a conscious effort not to do that too. After 15 cycles
of preparing startups for investors and then watching how they do,
I can now look at a group we're interviewing through Demo Day
investors' eyes. But those are the wrong eyes to look through!
We can afford to take at least 10x as much risk as Demo Day investors.
And since risk is usually proportionate to reward, if you can afford
to take more risk you should. What would it mean to take 10x more
risk than Demo Day investors? We'd have to be willing to fund 10x
more startups than they would. Which means that even if we're
generous to ourselves and assume that YC can on average triple a
startup's expected value, we'd be taking the right amount of risk
if only 30% of the startups were able to raise significant funding
after Demo Day.
I don't know what fraction of them currently raise more after Demo
Day. I deliberately avoid calculating that number, because if you
start measuring something you start optimizing it, and I know it's
the wrong thing to optimize.
[5]
But the percentage is certainly
way over 30%. And frankly the thought of a 30% success rate at
fundraising makes my stomach clench. A Demo Day where only 30% of
the startups were fundable would be a shambles. Everyone would
agree that YC had jumped the shark. We ourselves would feel that
YC had jumped the shark. And yet we'd all be wrong.
For better or worse that's never going to be more than a thought
experiment. We could never stand it. How about that for
counterintuitive? I can lay out what I know to be the right thing
to do, and still not do it. I can make up all sorts of plausible
justifications. It would hurt YC's brand (at least among the
innumerate) if we invested in huge numbers of risky startups that
flamed out. It might dilute the value of the alumni network.
Perhaps most convincingly, it would be demoralizing for us to be
up to our chins in failure all the time. But I know the real reason
we're so conservative is that we just haven't assimilated the fact
of 1000x variation in returns.
We'll probably never be able to bring ourselves to take risks
proportionate to the returns in this business. The best we can
hope for is that when we interview a group and find ourselves
thinking "they seem like good founders, but what are investors going
to think of this crazy idea?" we'll continue to be able to say "who
cares what investors think?" That's what we thought about Airbnb,
and if we want to fund more Airbnbs we have to stay good at thinking
it.
Notes
[1]
I'm not saying that the big winners are all that matters, just
that they're all that matters financially for investors. Since
we're not doing YC mainly for financial reasons, the big winners
aren't all that matters to us. We're delighted to have funded
Reddit, for example. Even though we made comparatively little from
it, Reddit has had a big effect on the world, and it introduced us
to Steve Huffman and Alexis Ohanian, both of whom have become good
friends.
Nor do we push founders to try to become one of the big winners if
they don't want to. We didn't "swing for the fences" in our own
startup (Viaweb, which was acquired for $50 million), and it would
feel pretty bogus to press founders to do something we didn't do.
Our rule is that it's up to the founders. Some want to take over
the world, and some just want that first few million. But we invest
in so many companies that we don't have to sweat any one outcome.
In fact, we don't have to sweat whether startups have exits at all.
The biggest exits are the only ones that matter financially, and
those are guaranteed in the sense that if a company becomes big
enough, a market for its shares will inevitably arise. Since the
remaining outcomes don't have a significant effect on returns, it's
cool with us if the founders want to sell early for a small amount,
or grow slowly and never sell (i.e. become a so-called lifestyle
business), or even shut the company down. We're sometimes disappointed
when a startup we had high hopes for doesn't do well, but this
disappointment is mostly the ordinary variety that anyone feels
when that happens.
[2]
Without visual cues (e.g. the horizon) you can't distinguish
between gravity and acceleration. Which means if you're flying
through clouds you can't tell what the attitude of
the aircraft is. You could feel like you're flying straight and
level while in fact you're descending in a spiral. The solution
is to ignore what your body is telling you and listen only to your
instruments. But it turns out to be very hard to ignore what your
body is telling you. Every pilot knows about this
problem and yet
it is still a leading cause of accidents.
[3]
Not all big hits follow this pattern though. The reason Google
seemed a bad idea was that there were already lots of search engines
and there didn't seem to be room for another.
[4]
A startup's success at fundraising is a function of two things:
what they're selling and how good they are at selling it. And while
we can teach startups a lot about how to appeal to investors, even
the most convincing pitch can't sell an idea that investors don't
like. I was genuinely worried that Airbnb, for example, would not
be able to raise money after Demo Day. I couldn't convince Fred Wilson to fund them. They might not
have raised money at all but for the coincidence that Greg McAdoo,
our contact at Sequoia, was one of a handful of VCs who understood
the vacation rental business, having spent much of the previous two
years investigating it.
[5]
I calculated it once for the last batch before a consortium of
investors started offering investment automatically to every startup
we funded, summer 2010. At the time it was 94% (33 of 35 companies
that tried to raise money succeeded, and one didn't try because
they were already profitable). Presumably it's lower now because
of that investment; in the old days it was raise after Demo Day or
die.
Thanks to Sam Altman, Paul Buchheit, Patrick Collison, Jessica
Livingston, Geoff Ralston, and Harj Taggar for reading drafts of
this.
September 2012
A startup is a company designed to grow fast. Being newly founded
does not in itself make a company a startup. Nor is it necessary
for a startup to work on technology, or take venture funding, or
have some sort of "exit." The only essential thing is growth.
Everything else we associate with startups follows from growth.
If you want to start one it's important to understand that. Startups
are so hard that you can't be pointed off to the side and hope to
succeed. You have to know that growth is what you're after. The
good news is, if you get growth, everything else tends to fall into
place. Which means you can use growth like a compass to make almost
every decision you face.
Redwoods
Let's start with a distinction that should be obvious but is often
overlooked: not every newly founded company is a startup. Millions
of companies are started every year in the US. Only a tiny fraction
are startups. Most are service businesses — restaurants, barbershops,
plumbers, and so on. These are not startups, except in a few unusual
cases. A barbershop isn't designed to grow fast. Whereas a search
engine, for example, is.
When I say startups are designed to grow fast, I mean it in two
senses. Partly I mean designed in the sense of intended, because
most startups fail. But I also mean startups are different by
nature, in the same way a redwood seedling has a different destiny
from a bean sprout.
That difference is why there's a distinct word, "startup," for
companies designed to grow fast. If all companies were essentially
similar, but some through luck or the efforts of their founders
ended up growing very fast, we wouldn't need a separate word. We
could just talk about super-successful companies and less successful
ones. But in fact startups do have a different sort of DNA from
other businesses. Google is not just a barbershop whose founders
were unusually lucky and hard-working. Google was different from
the beginning.
To grow rapidly, you need to make something you can sell to a big
market. That's the difference between Google and a barbershop. A
barbershop doesn't scale.
For a company to grow really big, it must (a) make something lots
of people want, and (b) reach and serve all those people. Barbershops
are doing fine in the (a) department. Almost everyone needs their
hair cut. The problem for a barbershop, as for any retail
establishment, is (b). A barbershop serves customers in person,
and few will travel far for a haircut. And even if they did, the
barbershop couldn't accomodate them.
[1]
Writing software is a great way to solve (b), but you can still end
up constrained in (a). If you write software to teach Tibetan to
Hungarian speakers, you'll be able to reach most of the people who
want it, but there won't be many of them. If you make software
to teach English to Chinese speakers, however, you're in startup
territory.
Most businesses are tightly constrained in (a) or (b). The distinctive
feature of successful startups is that they're not.
Ideas
It might seem that it would always be better to start a startup
than an ordinary business. If you're going to start a company, why
not start the type with the most potential? The catch is that this
is a (fairly) efficient market. If you write software to teach
Tibetan to Hungarians, you won't have much competition. If you
write software to teach English to Chinese speakers, you'll face
ferocious competition, precisely because that's such a larger prize.
[2]
The constraints that limit ordinary companies also protect them.
That's the tradeoff. If you start a barbershop, you only have to
compete with other local barbers. If you start a search engine you
have to compete with the whole world.
The most important thing that the constraints on a normal business
protect it from is not competition, however, but the difficulty of
coming up with new ideas. If you open a bar in a particular
neighborhood, as well as limiting your potential and protecting you
from competitors, that geographic constraint also helps define your
company. Bar + neighborhood is a sufficient idea for a small
business. Similarly for companies constrained in (a). Your niche
both protects and defines you.
Whereas if you want to start a startup, you're probably going to
have to think of something fairly novel. A startup has to make
something it can deliver to a large market, and ideas of that type
are so valuable that all the obvious ones are already taken.
That space of ideas has been so thoroughly picked over that a startup
generally has to work on something everyone else has overlooked.
I was going to write that one has to make a conscious effort to
find ideas everyone else has overlooked. But that's not how most
startups get started. Usually successful startups happen because
the founders are sufficiently different from other people that ideas
few others can see seem obvious to them. Perhaps later they step
back and notice they've found an idea in everyone else's blind spot,
and from that point make a deliberate effort to stay there.
[3]
But at the moment when successful startups get started, much of the
innovation is unconscious.
What's different about successful founders is that they can see
different problems. It's a particularly good combination both to
be good at technology and to face problems that can be solved by
it, because technology changes so rapidly that formerly bad ideas
often become good without anyone noticing. Steve Wozniak's problem
was that he wanted his own computer. That was an unusual problem
to have in 1975. But technological change was about to make it a
much more common one. Because he not only wanted a computer but
knew how to build them, Wozniak was able to make himself one. And
the problem he solved for himself became one that Apple solved for
millions of people in the coming years. But by the time it was
obvious to ordinary people that this was a big market, Apple was
already established.
Google has similar origins. Larry Page and Sergey Brin wanted to
search the web. But unlike most people they had the technical
expertise both to notice that existing search engines were not as
good as they could be, and to know how to improve them. Over the
next few years their problem became everyone's problem, as the web
grew to a size where you didn't have to be a picky search expert
to notice the old algorithms weren't good enough. But as happened
with Apple, by the time everyone else realized how important search
was, Google was entrenched.
That's one connection between startup ideas and technology. Rapid
change in one area uncovers big, soluble problems in other areas.
Sometimes the changes are advances, and what they change is solubility.
That was the kind of change that yielded Apple; advances in chip
technology finally let Steve Wozniak design a computer he could
afford. But in Google's case the most important change was the
growth of the web. What changed there was not solubility but bigness.
The other connection between startups and technology is that startups
create new ways of doing things, and new ways of doing things are,
in the broader sense of the word, new technology.
When a startup both begins with an
idea exposed by technological change and makes a product consisting
of technology in the narrower sense (what used to be called "high
technology"), it's easy to conflate the two. But the two connections
are distinct and in principle one could start a startup that was
neither driven by technological change, nor whose product consisted
of technology except in the broader sense.
[4]
Rate
How fast does a company have to grow to be considered a startup?
There's no precise answer to that. "Startup" is a pole, not a
threshold. Starting one is at first no more than a declaration of
one's ambitions. You're committing not just to starting a company,
but to starting a fast growing one, and you're thus committing to
search for one of the rare ideas of that type. But at first you
have no more than commitment. Starting a startup is like being an
actor in that respect. "Actor" too is a pole rather than a threshold.
At the beginning of his career, an actor is a waiter who goes to
auditions. Getting work makes him a successful actor, but he doesn't
only become an actor when he's successful.
So the real question is not what growth rate makes a company a
startup, but what growth rate successful startups tend to have.
For founders that's more than a theoretical question, because it's
equivalent to asking if they're on the right path.
The growth of a successful startup usually has three phases:
A company that grows at 1% a week will grow 1.7x a year, whereas a
company that grows at 5% a week will grow 12.6x. A company making
$1000 a month (a typical number early in YC) and growing at 1% a
week will 4 years later be making $7900 a month, which is less than
a good programmer makes in salary in Silicon Valley. A startup
that grows at 5% a week will in 4 years be making $25 million a
month.
[10]
Our ancestors must rarely have encountered cases of exponential
growth, because our intuitions are no guide here. What happens
to fast growing startups tends to surprise even the founders.
Small variations in growth rate produce qualitatively different
outcomes. That's why there's a separate word for startups, and why
startups do things that ordinary companies don't, like raising money
and getting acquired. And, strangely enough, it's also why they
fail so frequently.
Considering how valuable a successful startup can become, anyone
familiar with the concept of expected value would be surprised if
the failure rate weren't high. If a successful startup could make
a founder $100 million, then even if the chance of succeeding were
only 1%, the expected value of starting one would be $1 million.
And the probability of a group of sufficiently smart and determined
founders succeeding on that scale might be significantly over 1%.
For the right people — e.g. the young Bill Gates — the probability
might be 20% or even 50%. So it's not surprising that so many want
to take a shot at it. In an efficient market, the number of failed
startups should be proportionate to the size of the successes. And
since the latter is huge the former should be too.
[11]
What this means is that at any given time, the great majority of
startups will be working on something that's never going to go
anywhere, and yet glorifying their doomed efforts with the grandiose
title of "startup."
This doesn't bother me. It's the same with other high-beta vocations,
like being an actor or a novelist. I've long since gotten used to
it. But it seems to bother a lot of people, particularly those
who've started ordinary businesses. Many are annoyed that these
so-called startups get all the attention, when hardly any of them
will amount to anything.
If they stepped back and looked at the whole picture they might be
less indignant. The mistake they're making is that by basing their
opinions on anecdotal evidence they're implicitly judging by the
median rather than the average. If you judge by the median startup,
the whole concept of a startup seems like a fraud. You have to
invent a bubble to explain why founders want to start them or
investors want to fund them. But it's a mistake to use the median
in a domain with so much variation. If you look at the average
outcome rather than the median, you can understand why investors
like them, and why, if they aren't median people, it's a rational
choice for founders to start them.
Deals
Why do investors like startups so much? Why are they so hot to
invest in photo-sharing apps, rather than solid money-making
businesses? Not only for the obvious reason.
The test of any investment is the ratio of return to risk. Startups
pass that test because although they're appallingly risky, the
returns when they do succeed are so high. But that's not the only
reason investors like startups. An ordinary slower-growing business
might have just as good a ratio of return to risk, if both were
lower. So why are VCs interested only in high-growth companies?
The reason is that they get paid by getting their capital back,
ideally after the startup IPOs, or failing that when it's acquired.
The other way to get returns from an investment is in the form of
dividends. Why isn't there a parallel VC industry that invests in
ordinary companies in return for a percentage of their profits?
Because it's too easy for people who control a private company to
funnel its revenues to themselves (e.g. by buying overpriced
components from a supplier they control) while making it look like
the company is making little profit. Anyone who invested in private
companies in return for dividends would have to pay close attention
to their books.
The reason VCs like to invest in startups is not simply the returns,
but also because such investments are so easy to oversee. The
founders can't enrich themselves without also enriching the investors.
[12]
Why do founders want to take the VCs' money? Growth, again. The
constraint between good ideas and growth operates in both directions.
It's not merely that you need a scalable idea to grow. If you have
such an idea and don't grow fast enough, competitors will. Growing
too slowly is particularly dangerous in a business with network
effects, which the best startups usually have to some degree.
Almost every company needs some amount of funding to get started.
But startups often raise money even when they are or could be
profitable. It might seem foolish to sell stock in a profitable
company for less than you think it will later be worth, but it's
no more foolish than buying insurance. Fundamentally that's how
the most successful startups view fundraising. They could grow the
company on its own revenues, but the extra money and help supplied
by VCs will let them grow even faster. Raising money lets you
choose your growth rate.
Money to grow faster is always at the command of the most successful
startups, because the VCs need them more than they need the VCs.
A profitable startup could if it wanted just grow on its own revenues.
Growing slower might be slightly dangerous, but chances are it
wouldn't kill them. Whereas VCs need to invest in startups, and
in particular the most successful startups, or they'll be out of
business. Which means that any sufficiently promising startup will
be offered money on terms they'd be crazy to refuse. And yet because
of the scale of the successes in the startup business, VCs can still
make money from such investments. You'd have to be crazy to believe
your company was going to become as valuable as a high growth rate
can make it, but some do.
Pretty much every successful startup will get acquisition offers
too. Why? What is it about startups that makes other companies
want to buy them?
[13]
Fundamentally the same thing that makes everyone else want the stock
of successful startups: a rapidly growing company is valuable. It's
a good thing eBay bought Paypal, for example, because Paypal is now
responsible for 43% of their sales and probably more of their growth.
But acquirers have an additional reason to want startups. A rapidly
growing company is not merely valuable, but dangerous. If it keeps
expanding, it might expand into the acquirer's own territory. Most
product acquisitions have some component of fear. Even if an
acquirer isn't threatened by the startup itself, they might be
alarmed at the thought of what a competitor could do with it. And
because startups are in this sense doubly valuable to acquirers,
acquirers will often pay more than an ordinary investor would.
[14]
Understand
The combination of founders, investors, and acquirers forms a natural
ecosystem. It works so well that those who don't understand it are
driven to invent conspiracy theories to explain how neatly things
sometimes turn out. Just as our ancestors did to explain the
apparently too neat workings of the natural world. But there is
no secret cabal making it all work.
If you start from the mistaken assumption that Instagram was
worthless, you have to invent a secret boss to force Mark Zuckerberg
to buy it. To anyone who knows Mark Zuckerberg, that is the reductio
ad absurdum of the initial assumption. The reason he bought Instagram
was that it was valuable and dangerous, and what made it so was
growth.
If you want to understand startups, understand growth. Growth
drives everything in this world. Growth is why startups usually
work on technology — because ideas for fast growing companies are
so rare that the best way to find new ones is to discover those
recently made viable by change, and technology is the best source
of rapid change. Growth is why it's a rational choice economically
for so many founders to try starting a startup: growth makes the
successful companies so valuable that the expected value is high
even though the risk is too. Growth is why VCs want to invest in
startups: not just because the returns are high but also because
generating returns from capital gains is easier to manage than
generating returns from dividends. Growth explains why the most
successful startups take VC money even if they don't need to: it
lets them choose their growth rate. And growth explains why
successful startups almost invariably get acquisition offers. To
acquirers a fast-growing company is not merely valuable but dangerous
too.
It's not just that if you want to succeed in some domain, you have
to understand the forces driving it. Understanding growth is what
starting a startup consists of. What you're really doing (and
to the dismay of some observers, all you're really doing) when you
start a startup is committing to solve a harder type of problem
than ordinary businesses do. You're committing to search for one
of the rare ideas that generates rapid growth. Because these ideas
are so valuable, finding one is hard. The startup is the embodiment
of your discoveries so far. Starting a startup is thus very much
like deciding to be a research scientist: you're not committing to
solve any specific problem; you don't know for sure which problems
are soluble; but you're committing to try to discover something no
one knew before. A startup founder is in effect an economic research
scientist. Most don't discover anything that remarkable, but some
discover relativity.
Notes
[1]
Strictly speaking it's not lots of customers you need but a big
market, meaning a high product of number of customers times how
much they'll pay. But it's dangerous to have too few customers
even if they pay a lot, or the power that individual customers have
over you could turn you into a de facto consulting firm. So whatever
market you're in, you'll usually do best to err on the side of
making the broadest type of product for it.
[2]
One year at Startup School David Heinemeier Hansson encouraged
programmers who wanted to start businesses to use a restaurant as
a model. What he meant, I believe, is that it's fine to start
software companies constrained in (a) in the same way a restaurant
is constrained in (b). I agree. Most people should not try to
start startups.
[3]
That sort of stepping back is one of the things we focus on at
Y Combinator. It's common for founders to have discovered something
intuitively without understanding all its implications. That's
probably true of the biggest discoveries in any field.
[4]
I got it wrong in "How to Make Wealth" when I said that a
startup was a small company that takes on a hard technical
problem. That is the most common recipe but not the only one.
[5]
In principle companies aren't limited by the size of the markets
they serve, because they could just expand into new markets. But
there seem to be limits on the ability of big companies to do that.
Which means the slowdown that comes from bumping up against the
limits of one's markets is ultimately just another way in which
internal limits are expressed.
It may be that some of these limits could be overcome by changing
the shape of the organization — specifically by sharding it.
[6]
This is, obviously, only for startups that have already launched
or can launch during YC. A startup building a new database will
probably not do that. On the other hand, launching something small
and then using growth rate as evolutionary pressure is such a
valuable technique that any company that could start this way
probably should.
[7]
If the startup is taking the Facebook/Twitter route and building
something they hope will be very popular but from which they don't
yet have a definite plan to make money, the growth rate has to be
higher, even though it's a proxy for revenue growth, because such
companies need huge numbers of users to succeed at all.
Beware too of the edge case where something spreads rapidly but the
churn is high as well, so that you have good net growth till you run
through all the potential users, at which point it suddenly stops.
[8]
Within YC when we say it's ipso facto right to do whatever gets
you growth, it's implicit that this excludes trickery like buying
users for more than their lifetime value, counting users as active
when they're really not, bleeding out invites at a regularly
increasing rate to manufacture a perfect growth curve, etc. Even
if you were able to fool investors with such tricks, you'd ultimately
be hurting yourself, because you're throwing off your own compass.
[9]
Which is why it's such a dangerous mistake to believe that
successful startups are simply the embodiment of some brilliant
initial idea. What you're looking for initially is not so much a
great idea as an idea that could evolve into a great one. The
danger is that promising ideas are not merely blurry versions of
great ones. They're often different in kind, because the early
adopters you evolve the idea upon have different needs from the
rest of the market. For example, the idea that evolves into Facebook
isn't merely a subset of Facebook; the idea that evolves into
Facebook is a site for Harvard undergrads.
[10]
What if a company grew at 1.7x a year for a really long time?
Could it not grow just as big as any successful startup? In principle
yes, of course. If our hypothetical company making $1000 a month
grew at 1% a week for 19 years, it would grow as big as a company
growing at 5% a week for 4 years. But while such trajectories may
be common in, say, real estate development, you don't see them much
in the technology business. In technology, companies that grow
slowly tend not to grow as big.
[11]
Any expected value calculation varies from person to person
depending on their utility function for money. I.e. the first
million is worth more to most people than subsequent millions. How
much more depends on the person. For founders who are younger or
more ambitious the utility function is flatter. Which is probably
part of the reason the founders of the most successful startups of
all tend to be on the young side.
[12]
More precisely, this is the case in the biggest winners, which
is where all the returns come from. A startup founder could pull
the same trick of enriching himself at the company's expense by
selling them overpriced components. But it wouldn't be worth it
for the founders of Google to do that. Only founders of failing
startups would even be tempted, but those are writeoffs from the
VCs' point of view anyway.
[13]
Acquisitions fall into two categories: those where the acquirer
wants the business, and those where the acquirer just wants the
employees. The latter type is sometimes called an HR acquisition.
Though nominally acquisitions and sometimes on a scale that has a
significant effect on the expected value calculation for potential
founders, HR acquisitions are viewed by acquirers as more akin to
hiring bonuses.
[14]
I once explained this to some founders who had recently arrived
from Russia. They found it novel that if you threatened a company
they'd pay a premium for you. "In Russia they just kill you," they
said, and they were only partly joking. Economically, the fact
that established companies can't simply eliminate new competitors
may be one of the most valuable aspects of the rule of law. And
so to the extent we see incumbents suppressing competitors via
regulations or patent suits, we should worry, not because it's a
departure from the rule of law per se but from what the rule of law
is aiming at.
Thanks to Sam Altman, Marc Andreessen, Paul Buchheit, Patrick
Collison, Jessica Livingston, Geoff Ralston, and Harj Taggar for
reading drafts of this.
October 2012
One advantage of Y Combinator's early, broad focus is that we
see trends before most other people. And one of the most conspicuous
trends in the last batch was the large number of hardware startups.
Out of 84 companies, 7 were making hardware. On the whole
they've done better than the companies that weren't.
They've faced resistance from investors of course. Investors have
a deep-seated bias against hardware. But investors' opinions are
a trailing indicator. The best founders are better at seeing the
future than the best investors, because the best founders are making
it.
There is no one single force driving this trend. Hardware does
well on crowdfunding sites. The spread of tablets makes it
possible to build new things controlled
by and even incorporating
them. Electric motors
have improved.
Wireless connectivity of various types can now be taken for granted.
It's getting more straightforward to get things manufactured.
Arduinos, 3D printing, laser cutters, and more accessible CNC milling are making hardware easier to prototype.
Retailers are less of a bottleneck as customers increasingly buy
online.
One question I can answer is why hardware is suddenly cool.
It always was cool.
Physical things are great. They just haven't
been as great a way to start a rapidly growing business
as software. But that rule may not be permanent. It's not even
that old; it only dates from about 1990. Maybe the advantage
of software will turn out to have been temporary. Hackers love to
build hardware, and customers love to buy it. So if the ease of
shipping hardware even approached the ease of shipping software,
we'd see a lot more hardware startups.
It wouldn't be the first time something was a bad idea till it
wasn't. And it wouldn't be the first time investors learned that
lesson from founders.
So if you want to work on hardware, don't be deterred from doing
it because you worry investors will discriminate against you. And
in particular, don't be deterred from applying to Y Combinator
with a hardware idea, because we're especially interested in hardware
startups.
We know there's room for the next Steve Jobs.
But there's almost certainly also room for the first
<Your Name Here>.
Thanks to Sam Altman, Trevor Blackwell, David Cann, Sanjay Dastoor,
Paul Gerhardt, Cameron Robertson, Harj Taggar, and Garry Tan for reading drafts of this.
November 2012
The way to get startup ideas is not to try to think of startup
ideas. It's to look for problems, preferably problems you have
yourself.
The very best startup ideas tend to have three things in common:
they're something the founders themselves want, that they themselves
can build, and that few others realize are worth doing. Microsoft,
Apple, Yahoo, Google, and Facebook all began this way.
Problems
Why is it so important to work on a problem you have? Among other
things, it ensures the problem really exists. It sounds obvious
to say you should only work on problems that exist. And yet by far
the most common mistake startups make is to solve problems no one
has.
I made it myself. In 1995 I started a company to put art galleries
online. But galleries didn't want to be online. It's not how the
art business works. So why did I spend 6 months working on this
stupid idea? Because I didn't pay attention to users. I invented
a model of the world that didn't correspond to reality, and worked
from that. I didn't notice my model was wrong until I tried
to convince users to pay for what we'd built. Even then I took
embarrassingly long to catch on. I was attached to my model of the
world, and I'd spent a lot of time on the software. They had to
want it!
Why do so many founders build things no one wants? Because they
begin by trying to think of startup ideas. That m.o. is doubly
dangerous: it doesn't merely yield few good ideas; it yields bad
ideas that sound plausible enough to fool you into working on them.
At YC we call these "made-up" or "sitcom" startup ideas. Imagine
one of the characters on a TV show was starting a startup. The
writers would have to invent something for it to do. But coming
up with good startup ideas is hard. It's not something you can do
for the asking. So (unless they got amazingly lucky) the writers
would come up with an idea that sounded plausible, but was actually
bad.
For example, a social network for pet owners. It doesn't sound
obviously mistaken. Millions of people have pets. Often they care
a lot about their pets and spend a lot of money on them. Surely
many of these people would like a site where they could talk to
other pet owners. Not all of them perhaps, but if just 2 or 3
percent were regular visitors, you could have millions of users.
You could serve them targeted offers, and maybe charge for premium
features.
[1]
The danger of an idea like this is that when you run it by your
friends with pets, they don't say "I would never use this." They
say "Yeah, maybe I could see using something like that." Even when
the startup launches, it will sound plausible to a lot of people.
They don't want to use it themselves, at least not right now, but
they could imagine other people wanting it. Sum that reaction
across the entire population, and you have zero users.
[2]
Well
When a startup launches, there have to be at least some users who
really need what they're making — not just people who could see
themselves using it one day, but who want it urgently. Usually
this initial group of users is small, for the simple reason that
if there were something that large numbers of people urgently needed
and that could be built with the amount of effort a startup usually
puts into a version one, it would probably already exist. Which
means you have to compromise on one dimension: you can either build
something a large number of people want a small amount, or something
a small number of people want a large amount. Choose the latter.
Not all ideas of that type are good startup ideas, but nearly all
good startup ideas are of that type.
Imagine a graph whose x axis represents all the people who might
want what you're making and whose y axis represents how much they
want it. If you invert the scale on the y axis, you can envision
companies as holes. Google is an immense crater: hundreds of
millions of people use it, and they need it a lot. A startup just
starting out can't expect to excavate that much volume. So you
have two choices about the shape of hole you start with. You can
either dig a hole that's broad but shallow, or one that's narrow
and deep, like a well.
Made-up startup ideas are usually of the first type. Lots of people
are mildly interested in a social network for pet owners.
Nearly all good startup ideas are of the second type. Microsoft
was a well when they made Altair Basic. There were only a couple
thousand Altair owners, but without this software they were programming
in machine language. Thirty years later Facebook had the same
shape. Their first site was exclusively for Harvard students, of
which there are only a few thousand, but those few thousand users
wanted it a lot.
When you have an idea for a startup, ask yourself: who wants this
right now? Who wants this so much that they'll use it even when
it's a crappy version one made by a two-person startup they've never
heard of? If you can't answer that, the idea is probably bad.
[3]
You don't need the narrowness of the well per se. It's depth you
need; you get narrowness as a byproduct of optimizing for depth
(and speed). But you almost always do get it. In practice the
link between depth and narrowness is so strong that it's a good
sign when you know that an idea will appeal strongly to a specific
group or type of user.
But while demand shaped like a well is almost a necessary condition
for a good startup idea, it's not a sufficient one. If Mark
Zuckerberg had built something that could only ever have appealed
to Harvard students, it would not have been a good startup idea.
Facebook was a good idea because it started with a small market
there was a fast path out of. Colleges are similar enough that if
you build a facebook that works at Harvard, it will work at any
college. So you spread rapidly through all the colleges. Once you
have all the college students, you get everyone else simply by
letting them in.
Similarly for Microsoft: Basic for the Altair; Basic for other
machines; other languages besides Basic; operating systems;
applications; IPO.
Self
How do you tell whether there's a path out of an idea? How do you
tell whether something is the germ of a giant company, or just a
niche product? Often you can't. The founders of Airbnb didn't
realize at first how big a market they were tapping. Initially
they had a much narrower idea. They were going to let hosts rent
out space on their floors during conventions. They didn't foresee
the expansion of this idea; it forced itself upon them gradually.
All they knew at first is that they were onto something. That's
probably as much as Bill Gates or Mark Zuckerberg knew at first.
Occasionally it's obvious from the beginning when there's a path
out of the initial niche. And sometimes I can see a path that's
not immediately obvious; that's one of our specialties at YC. But
there are limits to how well this can be done, no matter how much
experience you have. The most important thing to understand about
paths out of the initial idea is the meta-fact that these are hard
to see.
So if you can't predict whether there's a path out of an idea, how
do you choose between ideas? The truth is disappointing but
interesting: if you're the right sort of person, you have the right
sort of hunches. If you're at the leading edge of a field that's
changing fast, when you have a hunch that something is worth doing,
you're more likely to be right.
In Zen and the Art of Motorcycle Maintenance, Robert Pirsig says:
You want to know how to paint a perfect painting? It's easy. Make yourself perfect and then just paint naturally.I've wondered about that passage since I read it in high school. I'm not sure how useful his advice is for painting specifically, but it fits this situation well. Empirically, the way to have good startup ideas is to become the sort of person who has them.
Live in the future, then build what's missing.That describes the way many if not most of the biggest startups got started. Neither Apple nor Yahoo nor Google nor Facebook were even supposed to be companies at first. They grew out of things their founders built because there seemed a gap in the world.
Live in the future and build what seems interesting.
July 2013
One of the most common types of advice we give at Y Combinator is
to do things that don't scale. A lot of would-be founders believe
that startups either take off or don't. You build something, make
it available, and if you've made a better mousetrap, people beat a
path to your door as promised. Or they don't, in which case the
market must not exist.
[1]
Actually startups take off because the founders make them take off.
There may be a handful that just grew by themselves, but usually
it takes some sort of push to get them going. A good metaphor would
be the cranks that car engines had before they got electric starters.
Once the engine was going, it would keep going, but there was a
separate and laborious process to get it going.
Recruit
The most common unscalable thing founders have to do at the start
is to recruit users manually. Nearly all startups have to. You
can't wait for users to come to you. You have to go out and get
them.
Stripe is one of the most successful startups we've funded, and the
problem they solved was an urgent one. If anyone could have sat
back and waited for users, it was Stripe. But in fact they're
famous within YC for aggressive early user acquisition.
Startups building things for other startups have a big pool of
potential users in the other companies we've funded, and none took
better advantage of it than Stripe. At YC we use the term "Collison
installation" for the technique they invented. More diffident
founders ask "Will you try our beta?" and if the answer is yes,
they say "Great, we'll send you a link." But the Collison brothers
weren't going to wait. When anyone agreed to try Stripe they'd say
"Right then, give me your laptop" and set them up on the spot.
There are two reasons founders resist going out and recruiting users
individually. One is a combination of shyness and laziness. They'd
rather sit at home writing code than go out and talk to a bunch of
strangers and probably be rejected by most of them. But for a
startup to succeed, at least one founder (usually the CEO) will
have to spend a lot of time on sales and marketing.
[2]
The other reason founders ignore this path is that the absolute
numbers seem so small at first. This can't be how the big, famous
startups got started, they think. The mistake they make is to
underestimate the power of compound growth. We encourage every
startup to measure their progress by weekly growth
rate. If you have 100 users, you need to get 10 more next week
to grow 10% a week. And while 110 may not seem much better than
100, if you keep growing at 10% a week you'll be surprised how big
the numbers get. After a year you'll have 14,000 users, and after
2 years you'll have 2 million.
You'll be doing different things when you're acquiring users a
thousand at a time, and growth has to slow down eventually. But
if the market exists you can usually start by recruiting users
manually and then gradually switch to less manual methods.
[3]
Airbnb is a classic example of this technique. Marketplaces are
so hard to get rolling that you should expect to take heroic measures
at first. In Airbnb's case, these consisted of going door to door
in New York, recruiting new users and helping existing ones improve
their listings. When I remember the Airbnbs during YC, I picture
them with rolly bags, because when they showed up for tuesday dinners
they'd always just flown back from somewhere.
Fragile
Airbnb now seems like an unstoppable juggernaut, but early on it
was so fragile that about 30 days of going out and engaging in
person with users made the difference between success and failure.
That initial fragility was not a unique feature of Airbnb. Almost
all startups are fragile initially. And that's one of the biggest
things inexperienced founders and investors (and reporters and
know-it-alls on forums) get wrong about them. They unconsciously
judge larval startups by the standards of established ones. They're
like someone looking at a newborn baby and concluding "there's no
way this tiny creature could ever accomplish anything."
It's harmless if reporters and know-it-alls dismiss your startup.
They always get things wrong. It's even ok if investors dismiss
your startup; they'll change their minds when they see growth. The
big danger is that you'll dismiss your startup yourself. I've seen
it happen. I often have to encourage founders who don't see the
full potential of what they're building. Even Bill Gates made that
mistake. He returned to Harvard for the fall semester after starting
Microsoft. He didn't stay long, but he wouldn't have returned at
all if he'd realized Microsoft was going to be even a fraction of
the size it turned out to be.
[4]
The question to ask about an early stage startup is not "is this
company taking over the world?" but "how big could this company
get if the founders did the right things?" And the right things
often seem both laborious and inconsequential at the time. Microsoft
can't have seemed very impressive when it was just a couple guys
in Albuquerque writing Basic interpreters for a market of a few
thousand hobbyists (as they were then called), but in retrospect
that was the optimal path to dominating microcomputer software.
And I know Brian Chesky and Joe Gebbia didn't feel like they were
en route to the big time as they were taking "professional" photos
of their first hosts' apartments. They were just trying to survive.
But in retrospect that too was the optimal path to dominating a big
market.
How do you find users to recruit manually? If you build something
to solve your own problems, then
you only have to find your peers, which is usually straightforward.
Otherwise you'll have to make a more deliberate effort to locate
the most promising vein of users. The usual way to do that is to
get some initial set of users by doing a comparatively untargeted
launch, and then to observe which kind seem most enthusiastic, and
seek out more like them. For example, Ben Silbermann noticed that
a lot of the earliest Pinterest users were interested in design,
so he went to a conference of design bloggers to recruit users, and
that worked well.
[5]
Delight
You should take extraordinary measures not just to acquire users,
but also to make them happy. For as long as they could (which
turned out to be surprisingly long), Wufoo sent each new user a
hand-written thank you note. Your first users should feel that
signing up with you was one of the best choices they ever made.
And you in turn should be racking your brains to think of new ways
to delight them.
Why do we have to teach startups this? Why is it counterintuitive
for founders? Three reasons, I think.
One is that a lot of startup founders are trained as engineers,
and customer service is not part of the training of engineers.
You're supposed to build things that are robust and elegant, not
be slavishly attentive to individual users like some kind of
salesperson. Ironically, part of the reason engineering is
traditionally averse to handholding is that its traditions date
from a time when engineers were less powerful — when they were
only in charge of their narrow domain of building things, rather
than running the whole show. You can be ornery when you're Scotty,
but not when you're Kirk.
Another reason founders don't focus enough on individual customers
is that they worry it won't scale. But when founders of larval
startups worry about this, I point out that in their current state
they have nothing to lose. Maybe if they go out of their way to
make existing users super happy, they'll one day have too many to
do so much for. That would be a great problem to have. See if you
can make it happen. And incidentally, when it does, you'll find
that delighting customers scales better than you expected. Partly
because you can usually find ways to make anything scale more than
you would have predicted, and partly because delighting customers
will by then have permeated your culture.
I have never once seen a startup lured down a blind alley by trying
too hard to make their initial users happy.
But perhaps the biggest thing preventing founders from realizing
how attentive they could be to their users is that they've never
experienced such attention themselves. Their standards for customer
service have been set by the companies they've been customers of,
which are mostly big ones. Tim Cook doesn't send you a hand-written
note after you buy a laptop. He can't. But you can. That's one
advantage of being small: you can provide a level of service no big
company can.
[6]
Once you realize that existing conventions are not the upper bound
on user experience, it's interesting in a very pleasant way to think
about how far you could go to delight your users.
Experience
I was trying to think of a phrase to convey how extreme your attention
to users should be, and I realized Steve Jobs had already done it:
insanely great. Steve wasn't just using "insanely" as a synonym
for "very." He meant it more literally — that one should focus
on quality of execution to a degree that in everyday life would be
considered pathological.
All the most successful startups we've funded have, and that probably
doesn't surprise would-be founders. What novice founders don't get
is what insanely great translates to in a larval startup. When
Steve Jobs started using that phrase, Apple was already an established
company. He meant the Mac (and its documentation and even
packaging — such is the nature of obsession) should be insanely
well designed and manufactured. That's not hard for engineers to
grasp. It's just a more extreme version of designing a robust and
elegant product.
What founders have a hard time grasping (and Steve himself might
have had a hard time grasping) is what insanely great morphs into
as you roll the time slider back to the first couple months of a
startup's life. It's not the product that should be insanely great,
but the experience of being your user. The product is just one
component of that. For a big company it's necessarily the dominant
one. But you can and should give users an insanely great experience
with an early, incomplete, buggy product, if you make up the
difference with attentiveness.
Can, perhaps, but should? Yes. Over-engaging with early users is
not just a permissible technique for getting growth rolling. For
most successful startups it's a necessary part of the feedback loop
that makes the product good. Making a better mousetrap is not an
atomic operation. Even if you start the way most successful startups
have, by building something you yourself need, the first thing you
build is never quite right. And except in domains with big penalties
for making mistakes, it's often better not to aim for perfection
initially. In software, especially, it usually works best to get
something in front of users as soon as it has a quantum of utility,
and then see what they do with it. Perfectionism is often an excuse
for procrastination, and in any case your initial model of users
is always inaccurate, even if you're one of them.
[7]
The feedback you get from engaging directly with your earliest users
will be the best you ever get. When you're so big you have to
resort to focus groups, you'll wish you could go over to your users'
homes and offices and watch them use your stuff like you did when
there were only a handful of them.
Fire
Sometimes the right unscalable trick is to focus on a deliberately
narrow market. It's like keeping a fire contained at first to get
it really hot before adding more logs.
That's what Facebook did. At first it was just for Harvard students.
In that form it only had a potential market of a few thousand people,
but because they felt it was really for them, a critical mass of
them signed up. After Facebook stopped being for Harvard students,
it remained for students at specific colleges for quite a while.
When I interviewed Mark Zuckerberg at Startup School, he said that
while it was a lot of work creating course lists for each school,
doing that made students feel the site was their natural home.
Any startup that could be described as a marketplace usually has
to start in a subset of the market, but this can work for other
startups as well. It's always worth asking if there's a subset of
the market in which you can get a critical mass of users quickly.
[8]
Most startups that use the contained fire strategy do it unconsciously.
They build something for themselves and their friends, who happen
to be the early adopters, and only realize later that they could
offer it to a broader market. The strategy works just as well if
you do it unconsciously. The biggest danger of not being consciously
aware of this pattern is for those who naively discard part of it.
E.g. if you don't build something for yourself and your friends,
or even if you do, but you come from the corporate world and your
friends are not early adopters, you'll no longer have a perfect
initial market handed to you on a platter.
Among companies, the best early adopters are usually other startups.
They're more open to new things both by nature and because, having
just been started, they haven't made all their choices yet. Plus
when they succeed they grow fast, and you with them. It was one
of many unforeseen advantages of the YC model (and specifically of
making YC big) that B2B startups now have an instant market of
hundreds of other startups ready at hand.
Meraki
For hardware startups there's a variant of
doing things that don't scale that we call "pulling a Meraki."
Although we didn't fund Meraki, the founders were Robert Morris's
grad students, so we know their history. They got started by doing
something that really doesn't scale: assembling their routers
themselves.
Hardware startups face an obstacle that software startups don't.
The minimum order for a factory production run is usually several
hundred thousand dollars. Which can put you in a catch-22: without
a product you can't generate the growth you need to raise the money
to manufacture your product. Back when hardware startups had to
rely on investors for money, you had to be pretty convincing to
overcome this. The arrival of crowdfunding (or more precisely,
preorders) has helped a lot. But even so I'd advise startups to
pull a Meraki initially if they can. That's what Pebble did. The
Pebbles
assembled
the first several hundred watches themselves. If
they hadn't gone through that phase, they probably wouldn't have
sold $10 million worth of watches when they did go on Kickstarter.
Like paying excessive attention to early customers, fabricating
things yourself turns out to be valuable for hardware startups.
You can tweak the design faster when you're the factory, and you
learn things you'd never have known otherwise. Eric Migicovsky of
Pebble said one of the things he learned was "how valuable it was to
source good screws." Who knew?
Consult
Sometimes we advise founders of B2B startups to take over-engagement
to an extreme, and to pick a single user and act as if they were
consultants building something just for that one user. The initial
user serves as the form for your mold; keep tweaking till you fit
their needs perfectly, and you'll usually find you've made something
other users want too. Even if there aren't many of them, there are
probably adjacent territories that have more. As long as you can
find just one user who really needs something and can act on that
need, you've got a toehold in making something people want, and
that's as much as any startup needs initially.
[9]
Consulting is the canonical example of work that doesn't scale.
But (like other ways of bestowing one's favors liberally) it's safe
to do it so long as you're not being paid to. That's where companies
cross the line. So long as you're a product company that's merely
being extra attentive to a customer, they're very grateful even if
you don't solve all their problems. But when they start paying you
specifically for that attentiveness — when they start paying
you by the hour — they expect you to do everything.
Another consulting-like technique for recruiting initially lukewarm
users is to use your software yourselves on their behalf. We
did that at Viaweb. When we approached merchants asking if they
wanted to use our software to make online stores, some said no, but
they'd let us make one for them. Since we would do anything to get
users, we did. We felt pretty lame at the time. Instead of
organizing big strategic e-commerce partnerships, we were trying
to sell luggage and pens and men's shirts. But in retrospect it
was exactly the right thing to do, because it taught us how it would
feel to merchants to use our software. Sometimes the feedback loop
was near instantaneous: in the middle of building some merchant's
site I'd find I needed a feature we didn't have, so I'd spend a
couple hours implementing it and then resume building the site.
Manual
There's a more extreme variant where you don't just use your software,
but are your software. When you only have a small number of users,
you can sometimes get away with doing by hand things that you plan
to automate later. This lets you launch faster, and when you do
finally automate yourself out of the loop, you'll know exactly what
to build because you'll have muscle memory from doing it yourself.
When manual components look to the user like software, this technique
starts to have aspects of a practical joke. For example, the way
Stripe delivered "instant" merchant accounts to its first users was
that the founders manually signed them up for traditional merchant
accounts behind the scenes.
Some startups could be entirely manual at first. If you can find
someone with a problem that needs solving and you can solve it
manually, go ahead and do that for as long as you can, and then
gradually automate the bottlenecks. It would be a little frightening
to be solving users' problems in a way that wasn't yet automatic,
but less frightening than the far more common case of having something
automatic that doesn't yet solve anyone's problems.
Big
I should mention one sort of initial tactic that usually doesn't
work: the Big Launch. I occasionally meet founders who seem to
believe startups are projectiles rather than powered aircraft, and
that they'll make it big if and only if they're launched with
sufficient initial velocity. They want to launch simultaneously
in 8 different publications, with embargoes. And on a tuesday, of
course, since they read somewhere that's the optimum day to launch
something.
It's easy to see how little launches matter. Think of some successful
startups. How many of their launches do you remember?
All you need from a launch is some initial core of users. How well
you're doing a few months later will depend more on how happy you
made those users than how many there were of them.
[10]
So why do founders think launches matter? A combination of solipsism
and laziness. They think what they're building is so great that
everyone who hears about it will immediately sign up. Plus it would
be so much less work if you could get users merely by broadcasting
your existence, rather than recruiting them one at a time. But
even if what you're building really is great, getting users will
always be a gradual process — partly because great things
are usually also novel, but mainly because users have other things
to think about.
Partnerships too usually don't work. They don't work for startups
in general, but they especially don't work as a way to get growth
started. It's a common mistake among inexperienced founders to
believe that a partnership with a big company will be their big
break. Six months later they're all saying the same thing: that
was way more work than we expected, and we ended up getting practically
nothing out of it.
[11]
It's not enough just to do something extraordinary initially. You
have to make an extraordinary effort initially. Any strategy
that omits the effort — whether it's expecting a big launch to
get you users, or a big partner — is ipso facto suspect.
Vector
The need to do something unscalably laborious to get started is so
nearly universal that it might be a good idea to stop thinking of
startup ideas as scalars. Instead we should try thinking of them
as pairs of what you're going to build, plus the unscalable thing(s)
you're going to do initially to get the company going.
It could be interesting to start viewing startup ideas this way,
because now that there are two components you can try to be imaginative
about the second as well as the first. But in most cases the second
component will be what it usually is — recruit users manually
and give them an overwhelmingly good experience — and the main
benefit of treating startups as vectors will be to remind founders
they need to work hard in two dimensions.
[12]
In the best case, both components of the vector contribute to your
company's DNA: the unscalable things you have to do to get started
are not merely a necessary evil, but change the company permanently
for the better. If you have to be aggressive about user acquisition
when you're small, you'll probably still be aggressive when you're
big. If you have to manufacture your own hardware, or use your
software on users's behalf, you'll learn things you couldn't have
learned otherwise. And most importantly, if you have to work hard
to delight users when you only have a handful of them, you'll keep
doing it when you have a lot.
Notes
[1]
Actually Emerson never mentioned mousetraps specifically. He
wrote "If a man has good corn or wood, or boards, or pigs, to sell,
or can make better chairs or knives, crucibles or church organs,
than anybody else, you will find a broad hard-beaten road to his
house, though it be in the woods."
[2]
Thanks to Sam Altman for suggesting I make this explicit.
And no, you can't avoid doing sales by hiring someone to do it for
you. You have to do sales yourself initially. Later you can hire
a real salesperson to replace you.
[3]
The reason this works is that as you get bigger, your size
helps you grow. Patrick Collison wrote "At some point, there was
a very noticeable change in how Stripe felt. It tipped from being
this boulder we had to push to being a train car that in fact had
its own momentum."
[4]
One of the more subtle ways in which YC can help founders
is by calibrating their ambitions, because we know exactly how a
lot of successful startups looked when they were just getting
started.
[5]
If you're building something for which you can't easily get
a small set of users to observe — e.g. enterprise software — and
in a domain where you have no connections, you'll have to rely on
cold calls and introductions. But should you even be working on
such an idea?
[6]
Garry Tan pointed out an interesting trap founders fall into
in the beginning. They want so much to seem big that they imitate
even the flaws of big companies, like indifference to individual
users. This seems to them more "professional." Actually it's
better to embrace the fact that you're small and use whatever
advantages that brings.
[7]
Your user model almost couldn't be perfectly accurate, because
users' needs often change in response to what you build for them.
Build them a microcomputer, and suddenly they need to run spreadsheets
on it, because the arrival of your new microcomputer causes someone
to invent the spreadsheet.
[8]
If you have to choose between the subset that will sign up
quickest and those that will pay the most, it's usually best to
pick the former, because those are probably the early adopters.
They'll have a better influence on your product, and they won't
make you expend as much effort on sales. And though they have less
money, you don't need that much to maintain your target growth rate
early on.
[9]
Yes, I can imagine cases where you could end up making
something that was really only useful for one user. But those are
usually obvious, even to inexperienced founders. So if it's not
obvious you'd be making something for a market of one, don't worry
about that danger.
[10]
There may even be an inverse correlation between launch
magnitude and success. The only launches I remember are famous
flops like the Segway and Google Wave. Wave is a particularly
alarming example, because I think it was actually a great idea that
was killed partly by its overdone launch.
[11]
Google grew big on the back of Yahoo, but that wasn't a
partnership. Yahoo was their customer.
[12]
It will also remind founders that an idea where the second
component is empty — an idea where there is nothing you can do
to get going, e.g. because you have no way to find users to recruit
manually — is probably a bad idea, at least for those founders.
Thanks to Sam Altman, Paul Buchheit, Patrick Collison, Kevin
Hale, Steven Levy, Jessica Livingston, Geoff Ralston, and Garry Tan for reading
drafts of this.
August 2013
When people hurt themselves lifting heavy things, it's usually
because they try to lift with their back. The right way to lift
heavy things is to let your legs do the work. Inexperienced founders
make the same mistake when trying to convince investors. They try
to convince with their pitch. Most would be better off if they let
their startup do the work — if they started by understanding why
their startup is worth investing in, then simply explained this
well to investors.
Investors are looking for startups that will be very successful.
But that test is not as simple as it sounds. In startups, as in a
lot of other domains, the distribution of outcomes follows a power
law, but in startups the curve is startlingly steep. The big
successes are so big they
dwarf the rest. And since there are only
a handful each year (the conventional wisdom is 15), investors treat
"big success" as if it were binary. Most are interested in you if
you seem like you have a chance, however small, of being one of the
15 big successes, and otherwise not.
[1]
(There are a handful of angels who'd be interested in a company
with a high probability of being moderately successful. But angel
investors like big successes too.)
How do you seem like you'll be one of the big successes? You need
three things: formidable founders, a promising market, and (usually)
some evidence of success so far.
Formidable
The most important ingredient is formidable founders. Most investors
decide in the first few minutes whether you seem like a winner or
a loser, and once their opinion is set it's hard to change. [2]
Every startup has reasons both to invest and not to invest. If
investors think you're a winner they focus on the former, and if
not they focus on the latter. For example, it might be a rich
market, but with a slow sales cycle. If investors are impressed
with you as founders, they say they want to invest because it's a
rich market, and if not, they say they can't invest because of the
slow sales cycle.
They're not necessarily trying to mislead you. Most investors are
genuinely unclear in their own minds why they like or dislike
startups. If you seem like a winner, they'll like your idea more.
But don't be too smug about this weakness of theirs, because you
have it too; almost everyone does.
There is a role for ideas of course. They're fuel for the fire
that starts with liking the founders. Once investors like you,
you'll see them reaching for ideas: they'll be saying "yes, and you
could also do x." (Whereas when they don't like you, they'll be
saying "but what about y?")
But the foundation of convincing investors is to seem formidable,
and since this isn't a word most people use in conversation much,
I should explain what it means. A formidable person is one who
seems like they'll get what they want, regardless of whatever
obstacles are in the way. Formidable is close to confident, except
that someone could be confident and mistaken. Formidable is roughly
justifiably confident.
There are a handful of people who are really good at seeming
formidable — some because they actually are very formidable and
just let it show, and others because they are more or less con
artists.
[3]
But most founders, including many who will go on
to start very successful companies, are not that good at seeming
formidable the first time they try fundraising. What should they
do?
[4]
What they should not do is try to imitate the swagger of more
experienced founders. Investors are not always that good at judging
technology, but they're good at judging confidence. If you try to
act like something you're not, you'll just end up in an uncanny
valley. You'll depart from sincere, but never arrive at convincing.
Truth
The way to seem most formidable as an inexperienced founder is to
stick to the truth. How formidable you seem isn't a constant. It
varies depending on what you're saying. Most people can seem
confident when they're saying "one plus one is two," because they
know it's true. The most diffident person would be puzzled and
even slightly contemptuous if they told a VC "one plus one is two"
and the VC reacted with skepticism. The magic ability of people
who are good at seeming formidable is that they can do this with
the sentence "we're going to make a billion dollars a year." But
you can do the same, if not with that sentence with some fairly
impressive ones, so long as you convince yourself first.
That's the secret. Convince yourself that your startup is worth
investing in, and then when you explain this to investors they'll
believe you. And by convince yourself, I don't mean play mind games
with yourself to boost your confidence. I mean truly evaluate
whether your startup is worth investing in. If it isn't, don't try
to raise money.
[5]
But if it is, you'll be telling the truth
when you tell investors it's worth investing in, and they'll sense
that. You don't have to be a smooth presenter if you understand
something well and tell the truth about it.
To evaluate whether your startup is worth investing in, you have
to be a domain expert. If you're not a domain expert, you can be
as convinced as you like about your idea, and it will seem to
investors no more than an instance of the Dunning-Kruger effect.
Which in fact it will usually be. And investors can tell fairly
quickly whether you're a domain expert by how well you answer their
questions. Know everything about your market.
[6]
Why do founders persist in trying to convince investors of things
they're not convinced of themselves? Partly because we've all been
trained to.
When my friends Robert Morris and Trevor Blackwell were in grad
school, one of their fellow students was on the receiving end of a
question from their faculty advisor that we still quote today. When
the unfortunate fellow got to his last slide, the professor burst
out:
Which one of these conclusions do you actually believe?One of the artifacts of the way schools are organized is that we all get trained to talk even when we have nothing to say. If you have a ten page paper due, then ten pages you must write, even if you only have one page of ideas. Even if you have no ideas. You have to produce something. And all too many startups go into fundraising in the same spirit. When they think it's time to raise money, they try gamely to make the best case they can for their startup. Most never think of pausing beforehand to ask whether what they're saying is actually convincing, because they've all been trained to treat the need to present as a given — as an area of fixed size, over which however much truth they have must needs be spread, however thinly.
August 2013
The biggest component in most investors' opinion of you is the
opinion of other investors. Which is of course a recipe for
exponential growth. When one investor wants to invest in you, that
makes other investors want to, which makes others want to, and so
on.
Sometimes inexperienced founders mistakenly conclude that manipulating
these forces is the essence of fundraising. They hear stories about
stampedes to invest in successful startups, and think it's therefore
the mark of a successful startup to have this happen. But actually
the two are not that highly correlated. Lots of startups that cause
stampedes end up flaming out (in extreme cases, partly as a result
of the stampede), and lots of very successful startups were only
moderately popular with investors the first time they raised money.
So the point of this essay is not to explain how to create a stampede,
but merely to explain the forces that generate them. These forces
are always at work to some degree in fundraising, and they can cause
surprising situations. If you understand them, you can at least
avoid being surprised.
One reason investors like you more when other investors like you
is that you actually become a better investment. Raising money
decreases the risk of failure. Indeed, although investors hate it,
you are for this reason justified in raising your valuation for
later investors. The investors who invested when you had no money
were taking more risk, and are entitled to higher returns. Plus a
company that has raised money is literally more valuable. After
you raise the first million dollars, the company is at least a
million dollars more valuable, because it's the same company as
before, plus it has a million dollars in the bank.
[1]
Beware, though, because later investors so hate to have the price
raised on them that they resist even this self-evident reasoning.
Only raise the price on an investor you're comfortable with losing,
because some will angrily refuse.
[2]
The second reason investors like you more when you've had some
success at fundraising is that it makes you more confident, and an
investors' opinion of you is the foundation
of their opinion of your company. Founders are often surprised how
quickly investors seem to know when they start to succeed at raising
money. And while there are in fact lots of ways for such information
to spread among investors, the main vector is probably the founders
themselves. Though they're often clueless about technology, most
investors are pretty good at reading people. When fundraising is
going well, investors are quick to sense it in your increased
confidence. (This is one case where the average founder's inability
to remain poker-faced works to your advantage.)
But frankly the most important reason investors like you more when
you've started to raise money is that they're bad at judging startups.
Judging startups is hard even for the best investors. The mediocre
ones might as well be flipping coins. So when mediocre investors
see that lots of other people want to invest in you, they assume
there must be a reason. This leads to the phenomenon known in the
Valley as the "hot deal," where you have more interest from investors
than you can handle.
The best investors aren't influenced much by the opinion of other
investors. It would only dilute their own judgment to average it
together with other people's. But they are indirectly influenced
in the practical sense that interest from other investors imposes
a deadline. This is the fourth way in which offers beget offers.
If you start to get far along the track toward an offer with one
firm, it will sometimes provoke other firms, even good ones, to
make up their minds, lest they lose the deal.
Unless you're a wizard at negotiation (and if you're not sure,
you're not) be very careful about exaggerating this to push a good
investor to decide. Founders try this sort of thing all the time,
and investors are very sensitive to it. If anything oversensitive.
But you're safe so long as you're telling the truth. If you're
getting far along with investor B, but you'd rather raise money
from investor A, you can tell investor A that this is happening.
There's no manipulation in that. You're genuinely in a bind, because
you really would rather raise money from A, but you can't safely
reject an offer from B when it's still uncertain what A will decide.
Do not, however, tell A who B is. VCs will sometimes ask which
other VCs you're talking to, but you should never tell them. Angels
you can sometimes tell about other angels, because angels cooperate
more with one another. But if VCs ask, just point out that they
wouldn't want you telling other firms about your conversations, and
you feel obliged to do the same for any firm you talk to. If they
push you, point out that you're inexperienced at fundraising — which
is always a safe card to play — and you feel you have to be
extra cautious.
[3]
While few startups will experience a stampede of interest, almost
all will at least initially experience the other side of this
phenomenon, where the herd remains clumped together at a distance.
The fact that investors are so much influenced by other investors'
opinions means you always start out in something of a hole. So
don't be demoralized by how hard it is to get the first commitment,
because much of the difficulty comes from this external force. The
second will be easier.
Notes
[1]
An accountant might say that a company that has raised a million
dollars is no richer if it's convertible debt, but in practice money
raised as convertible debt is little different from money raised
in an equity round.
[2]
Founders are often surprised by this, but investors can get
very emotional. Or rather indignant; that's the main emotion I've
observed; but it is very common, to the point where it sometimes
causes investors to act against their own interests. I know of one
investor who invested in a startup at a $15 million valuation cap.
Earlier he'd had an opportunity to invest at a $5 million cap, but
he refused because a friend who invested earlier had been able to
invest at a $3 million cap.
[3]
If an investor pushes you hard to tell them about your conversations
with other investors, is this someone you want as an investor?
Thanks to Paul Buchheit, Jessica Livingston, Geoff Ralston, and Garry Tan
for reading drafts of this.
September 2013
Most startups that raise money do it more than once. A typical
trajectory might be (1) to get started with a few tens of thousands
from something like Y Combinator or individual angels, then
(2) raise a few hundred thousand to a few million to build the company,
and then (3) once the company is clearly succeeding, raise one or
more later rounds to accelerate growth.
Reality can be messier. Some companies raise money twice in phase
2. Others skip phase 1 and go straight to phase 2. And at Y Combinator
we get an increasing number of companies that have already
raised amounts in the hundreds of thousands. But the three phase
path is at least the one about which individual startups' paths
oscillate.
This essay focuses on phase 2 fundraising. That's the type the
startups we fund are doing on Demo Day, and this essay is the advice
we give them.
Forces
Fundraising is hard in both senses: hard like lifting a heavy weight,
and hard like solving a puzzle. It's hard like lifting a weight
because it's intrinsically hard to convince people to part with
large sums of money. That problem is irreducible; it should be
hard. But much of the other kind of difficulty can be eliminated.
Fundraising only seems a puzzle because it's an alien world to most
founders, and I hope to fix that by supplying a map through it.
To founders, the behavior of investors is often opaque — partly
because their motivations are obscure, but partly because they
deliberately mislead you. And the misleading ways of investors
combine horribly with the wishful thinking of inexperienced founders.
At YC we're always warning founders about this danger, and investors
are probably more circumspect with YC startups than with other
companies they talk to, and even so we witness a constant series
of explosions as these two volatile components combine.
[1]
If you're an inexperienced founder, the only way to survive is by
imposing external constraints on yourself. You can't trust your
intuitions. I'm going to give you a set of rules here that will
get you through this process if anything will. At certain moments
you'll be tempted to ignore them. So rule number zero is: these
rules exist for a reason. You wouldn't need a rule to keep you
going in one direction if there weren't powerful forces pushing you
in another.
The ultimate source of the forces acting on you are the forces
acting on investors. Investors are pinched between two kinds of
fear: fear of investing in startups that fizzle, and fear of missing
out on startups that take off. The cause of all this fear is the
very thing that makes startups such attractive investments: the
successful ones grow very fast. But that fast growth means investors
can't wait around. If you wait till a startup is obviously a
success, it's too late. To get the really high returns, you have
to invest in startups when it's still unclear how they'll do. But
that in turn makes investors nervous they're about to invest in a
flop. As indeed they often are.
What investors would like to do, if they could, is wait. When a
startup is only a few months old, every week that passes gives you
significantly more information about them. But if you wait too
long, other investors might take the deal away from you. And of
course the other investors are all subject to the same forces. So
what tends to happen is that they all wait as long as they can,
then when some act the rest have to.
Don't raise money unless you want it and it wants you.
Such a high proportion of successful startups raise money that it
might seem fundraising is one of the defining qualities of a startup.
Actually it isn't. Rapid growth is what
makes a company a startup. Most companies in a position to grow
rapidly find that (a) taking outside money helps them grow faster,
and (b) their growth potential makes it easy to attract such money.
It's so common for both (a) and (b) to be true of a successful
startup that practically all do raise outside money. But there may
be cases where a startup either wouldn't want to grow faster, or
outside money wouldn't help them to, and if you're one of them,
don't raise money.
The other time not to raise money is when you won't be able to. If
you try to raise money before you can convince
investors, you'll not only waste your time, but also burn your
reputation with those investors.
Be in fundraising mode or not.
One of the things that surprises founders most about fundraising
is how distracting it is. When you start fundraising, everything
else grinds to a halt. The problem is not the time fundraising
consumes but that it becomes the top idea in
your mind. A startup can't endure that level of distraction
for long. An early stage startup grows mostly because the founders
make it grow, and if the founders look away,
growth usually drops sharply.
Because fundraising is so distracting, a startup should either be
in fundraising mode or not. And when you do decide to raise money,
you should focus your whole attention on it so you can get it done
quickly and get back to work.
[2]
You can take money from investors when you're not in fundraising
mode. You just can't expend any attention on it. There are two
things that take attention: convincing investors, and negotiating
with them. So when you're not in fundraising mode, you should take
money from investors only if they require no convincing, and are
willing to invest on terms you'll take without negotiation. For
example, if a reputable investor is willing to invest on a convertible
note, using standard paperwork, that is either uncapped or capped
at a good valuation, you can take that without having to think.
[3]
The terms will be whatever they turn out to be in your next
equity round. And "no convincing" means just that: zero time spent
meeting with investors or preparing materials for them. If an
investor says they're ready to invest, but they need you to come
in for one meeting to meet some of the partners, tell them no, if
you're not in fundraising mode, because that's fundraising.
[4]
Tell them politely; tell them you're focusing on the company right
now, and that you'll get back to them when you're fundraising; but
do not get sucked down the slippery slope.
Investors will try to lure you into fundraising when you're not.
It's great for them if they can, because they can thereby get a
shot at you before everyone else. They'll send you emails saying
they want to meet to learn more about you. If you get cold-emailed
by an associate at a VC firm, you shouldn't meet even if you are
in fundraising mode. Deals don't happen that way.
[5]
But even
if you get an email from a partner you should try to delay meeting
till you're in fundraising mode. They may say they just want to
meet and chat, but investors never just want to meet and chat. What
if they like you? What if they start to talk about giving you
money? Will you be able to resist having that conversation? Unless
you're experienced enough at fundraising to have a casual conversation
with investors that stays casual, it's safer to tell them that you'd
be happy to later, when you're fundraising, but that right now you
need to focus on the company.
[6]
Companies that are successful at raising money in phase 2 sometimes
tack on a few investors after leaving fundraising mode. This is
fine; if fundraising went well, you'll be able to do it without
spending time convincing them or negotiating about terms.
Get introductions to investors.
Before you can talk to investors, you have to be introduced to them.
If you're presenting at a Demo Day, you'll be introduced to a whole
bunch simultaneously. But even if you are, you should supplement
these with intros you collect yourself.
Do you have to be introduced? In phase 2, yes. Some investors
will let you email them a business plan, but you can tell from the
way their sites are organized that they don't really want startups
to approach them directly.
Intros vary greatly in effectiveness. The best type of intro is
from a well-known investor who has just invested in you. So when
you get an investor to commit, ask them to introduce you to other
investors they respect.
[7]
The next best type of intro is from a
founder of a company they've funded. You can also get intros from
other people in the startup community, like lawyers and reporters.
There are now sites like AngelList, FundersClub, and WeFunder that
can introduce you to investors. We recommend startups treat them
as auxiliary sources of money. Raise money first from leads you
get yourself. Those will on average be better investors. Plus
you'll have an easier time raising money on these sites once you
can say you've already raised some from well-known investors.
Hear no till you hear yes.
Treat investors as saying no till they unequivocally say yes, in
the form of a definite offer with no contingencies.
I mentioned earlier that investors prefer to wait if they can.
What's particularly dangerous for founders is the way they wait.
Essentially, they lead you on. They seem like they're about to
invest right up till the moment they say no. If they even say no.
Some of the worse ones never actually do say no; they just stop
replying to your emails. They hope that way to get a free option
on investing. If they decide later that they want to invest — usually
because they've heard you're a hot deal — they can pretend they
just got distracted and then restart the conversation as if they'd
been about to.
[8]
That's not the worst thing investors will do. Some will use language
that makes it sound as if they're committing, but which doesn't
actually commit them. And wishful thinking founders are happy to
meet them half way.
[9]
Fortunately, the next rule is a tactic for neutralizing this behavior.
But to work it depends on you not being tricked by the no that
sounds like yes. It's so common for founders to be misled/mistaken
about this that we designed a protocol to fix the
problem. If you believe an investor has committed, get them to
confirm it. If you and they have different views of reality, whether
the source of the discrepancy is their sketchiness or your wishful
thinking, the prospect of confirming a commitment in writing will
flush it out. And till they confirm, regard them as saying no.
Do breadth-first search weighted by expected value.
When you talk to investors your m.o. should be breadth-first search,
weighted by expected value. You should always talk to investors
in parallel rather than serially. You can't afford the time it
takes to talk to investors serially, plus if you only talk to one
investor at a time, they don't have the pressure of other investors
to make them act. But you shouldn't pay the same attention to every
investor, because some are more promising prospects than others.
The optimal solution is to talk to all potential investors in
parallel, but give higher priority to the more promising ones.
[10]
Expected value = how likely an investor is to say yes, multiplied
by how good it would be if they did. So for example, an eminent
investor who would invest a lot, but will be hard to convince, might
have the same expected value as an obscure angel who won't invest
much, but will be easy to convince. Whereas an obscure angel who
will only invest a small amount, and yet needs to meet multiple
times before making up his mind, has very low expected value. Meet
such investors last, if at all.
[11]
Doing breadth-first search weighted by expected value will save you
from investors who never explicitly say no but merely drift away,
because you'll drift away from them at the same rate. It protects
you from investors who flake in much the same way that a distributed
algorithm protects you from processors that fail. If some investor
isn't returning your emails, or wants to have lots of meetings but
isn't progressing toward making you an offer, you automatically
focus less on them. But you have to be disciplined about assigning
probabilities. You can't let how much you want an investor influence
your estimate of how much they want you.
Know where you stand.
How do you judge how well you're doing with an investor, when
investors habitually seem more positive than they are? By looking
at their actions rather than their words. Every investor has some
track they need to move along from the first conversation to wiring
the money, and you should always know what that track consists of,
where you are on it, and how fast you're moving forward.
Never leave a meeting with an investor without asking what happens
next. What more do they need in order to decide? Do they need
another meeting with you? To talk about what? And how soon? Do
they need to do something internally, like talk to their partners,
or investigate some issue? How long do they expect it to take?
Don't be too pushy, but know where you stand. If investors are
vague or resist answering such questions, assume the worst; investors
who are seriously interested in you will usually be happy to talk
about what has to happen between now and wiring the money, because
they're already running through that in their heads.
[12]
If you're experienced at negotiations, you already know how to ask
such questions.
[13]
If you're not, there's a trick you can use
in this situation. Investors know you're inexperienced at raising
money. Inexperience there doesn't make you unattractive. Being a
noob at technology would, if you're starting a technology startup,
but not being a noob at fundraising. Larry and Sergey were noobs
at fundraising. So you can just confess that you're inexperienced
at this and ask how their process works and where you are in it.
[14]
Get the first commitment.
The biggest factor in most investors' opinions of you is the opinion
of other investors. Once you start getting
investors to commit, it becomes increasingly easy to get more to.
But the other side of this coin is that it's often hard to get the
first commitment.
Getting the first substantial offer can be half the total difficulty
of fundraising. What counts as a substantial offer depends on who
it's from and how much it is. Money from friends and family doesn't
usually count, no matter how much. But if you get $50k from a well
known VC firm or angel investor, that will usually be enough to set
things rolling.
[15]
Close committed money.
It's not a deal till the money's in the bank. I often hear
inexperienced founders say things like "We've raised $800,000,"
only to discover that zero of it is in the bank so far. Remember
the twin fears that torment investors? The fear of missing out
that makes them jump early, and the fear of jumping onto a turd
that results? This is a market where people are exceptionally prone
to buyer's remorse. And it's also one that furnishes them plenty
of excuses to gratify it. The public markets snap startup investing
around like a whip. If the Chinese economy blows up tomorrow, all
bets are off. But there are lots of surprises for individual
startups too, and they tend to be concentrated around fundraising.
Tomorrow a big competitor could appear, or you could get C&Ded, or
your cofounder could quit.
[16]
Even a day's delay can bring news that causes an investor to change
their mind. So when someone commits, get the money. Knowing where
you stand doesn't end when they say they'll invest. After they say
yes, know what the timetable is for getting the money, and then
babysit that process till it happens. Institutional investors have
people in charge of wiring money, but you may have to hunt angels
down in person to collect a check.
Inexperienced investors are the ones most likely to get buyer's
remorse. Established ones have learned to treat saying yes as like
diving off a diving board, and they also have more brand to preserve.
But I've heard of cases of even top-tier VC firms welching on deals.
Avoid investors who don't "lead."
Since getting the first offer is most of the difficulty of fundraising,
that should be part of your calculation of expected value when you
start. You have to estimate not just the probability that an
investor will say yes, but the probability that they'd be the first
to say yes, and the latter is not simply a constant fraction of the
former. Some investors are known for deciding quickly, and those
are extra valuable early on.
Conversely, an investor who will only invest once other investors
have is worthless initially. And while most investors are influenced
by how interested other investors are in you, there are some who
have an explicit policy of only investing after other investors
have. You can recognize this contemptible subspecies of investor
because they often talk about "leads." They say that they don't
lead, or that they'll invest once you have a lead. Sometimes they
even claim to be willing to lead themselves, by which they mean
they won't invest till you get $x from other investors. (It's great
if by "lead" they mean they'll invest unilaterally, and in addition
will help you raise more. What's lame is when they use the term
to mean they won't invest unless you can raise more elsewhere.)
[17]
Where does this term "lead" come from? Up till a few years ago,
startups raising money in phase 2 would usually raise equity rounds
in which several investors invested at the same time using the same
paperwork. You'd negotiate the terms with one "lead" investor, and
then all the others would sign the same documents and all the money
change hands at the closing.
Series A rounds still work that way, but things now work differently
for most fundraising prior to the series A. Now there are rarely
actual rounds before the A round, or leads for them. Now startups
simply raise money from investors one at a time till they feel they
have enough.
Since there are no longer leads, why do investors use that term?
Because it's a more legitimate-sounding way of saying what they
really mean. All they really mean is that their interest in you
is a function of other investors' interest in you. I.e. the spectral
signature of all mediocre investors. But when phrased in terms of
leads, it sounds like there is something structural and therefore
legitimate about their behavior.
When an investor tells you "I want to invest in you, but I don't
lead," translate that in your mind to "No, except yes if you turn
out to be a hot deal." And since that's the default opinion of any
investor about any startup, they've essentially just told you
nothing.
When you first start fundraising, the expected value of an investor
who won't "lead" is zero, so talk to such investors last if at all.
Have multiple plans.
Many investors will ask how much you're planning to raise. This
question makes founders feel they should be planning to raise a
specific amount. But in fact you shouldn't. It's a mistake to
have fixed plans in an undertaking as unpredictable as fundraising.
So why do investors ask how much you plan to raise? For much the
same reasons a salesperson in a store will ask "How much were you
planning to spend?" if you walk in looking for a gift for a friend.
You probably didn't have a precise amount in mind; you just want
to find something good, and if it's inexpensive, so much the better.
The salesperson asks you this not because you're supposed to have
a plan to spend a specific amount, but so they can show you only
things that cost the most you'll pay.
Similarly, when investors ask how much you plan to raise, it's not
because you're supposed to have a plan. It's to see whether you'd
be a suitable recipient for the size of investment they like to
make, and also to judge your ambition, reasonableness, and how far
you are along with fundraising.
If you're a wizard at fundraising, you can say "We plan to raise
a $7 million series A round, and we'll be accepting termsheets next
tuesday." I've known a handful of founders who could pull that off
without having VCs laugh in their faces. But if you're in the
inexperienced but earnest majority, the solution is analogous to
the solution I recommend for pitching
your startup: do the right thing and then just tell investors what
you're doing.
And the right strategy, in fundraising, is to have multiple plans
depending on how much you can raise. Ideally you should be able
to tell investors something like: we can make it to profitability
without raising any more money, but if we raise a few hundred
thousand we can hire one or two smart friends, and if we raise a
couple million, we can hire a whole engineering team, etc.
Different plans match different investors. If you're talking to a
VC firm that only does series A rounds (though there are few of
those left), it would be a waste of time talking about any but your
most expensive plan. Whereas if you're talking to an angel who
invests $20k at a time and you haven't raised any money yet, you
probably want to focus on your least expensive plan.
If you're so fortunate as to have to think about the upper limit
on what you should raise, a good rule of thumb is to multiply the
number of people you want to hire times $15k times 18 months. In
most startups, nearly all the costs are a function of the number
of people, and $15k per month is the conventional total cost
(including benefits and even office space) per person. $15k per
month is high, so don't actually spend that much. But it's ok to
use a high estimate when fundraising to add a margin for error. If
you have additional expenses, like manufacturing, add in those at
the end. Assuming you have none and you think you might hire 20
people, the most you'd want to raise is 20 x $15k x 18 = $5.4
million.
[18]
Underestimate how much you want.
Though you can focus on different plans when talking to different
types of investors, you should on the whole err on the side of
underestimating the amount you hope to raise.
For example, if you'd like to raise $500k, it's better to say
initially that you're trying to raise $250k. Then when you reach
$150k you're more than half done. That sends two useful signals
to investors: that you're doing well, and that they have to decide
quickly because you're running out of room. Whereas if you'd said
you were raising $500k, you'd be less than a third done at $150k.
If fundraising stalled there for an appreciable time, you'd start
to read as a failure.
Saying initially that you're raising $250k doesn't limit you to
raising that much. When you reach your initial target and you still
have investor interest, you can just decide to raise more. Startups
do that all the time. In fact, most startups that are very successful
at fundraising end up raising more than they originally intended.
I'm not saying you should lie, but that you should lower your
expectations initially. There is almost no downside in starting
with a low number. It not only won't cap the amount you raise, but
will on the whole tend to increase it.
A good metaphor here is angle of attack. If you try to fly at too
steep an angle of attack, you just stall. If you say right out of
the gate that you want to raise a $5 million series A round, unless
you're in a very strong position, you not only won't get that but
won't get anything. Better to start at a low angle of attack, build
up speed, and then gradually increase the angle if you want.
Be profitable if you can.
You will be in a much stronger position if your collection of plans
includes one for raising zero dollars — i.e. if you can make
it to profitability without raising any additional money. Ideally
you want to be able to say to investors "We'll succeed no matter
what, but raising money will help us do it faster."
There are many analogies between fundraising and dating, and this
is one of the strongest. No one wants you if you seem desperate.
And the best way not to seem desperate is not to be desperate.
That's one reason we urge startups during YC to keep expenses low
and to try to make it to ramen
profitability before Demo Day. Though it sounds slightly
paradoxical, if you want to raise money, the best thing you can do
is get yourself to the point where you don't need to.
There are almost two distinct modes of fundraising: one in which
founders who need money knock on doors seeking it, knowing that
otherwise the company will die or at the very least people will
have to be fired, and one in which founders who don't need money
take some to grow faster than they could merely on their own revenues.
To emphasize the distinction I'm going to name them: type A fundraising
is when you don't need money, and type B fundraising is when you
do.
Inexperienced founders read about famous startups doing what was
type A fundraising, and decide they should raise money too, since
that seems to be how startups work. Except when they raise money
they don't have a clear path to profitability and are thus doing
type B fundraising. And they are then surprised how difficult and
unpleasant it is.
Of course not all startups can make it to ramen profitability in a
few months. And some that don't still manage to have the upper
hand over investors, if they have some other advantage like
extraordinary growth numbers or exceptionally formidable founders.
But as time passes it gets increasingly difficult to fundraise from
a position of strength without being profitable.
[19]
Don't optimize for valuation.
When you raise money, what should your valuation be? The most
important thing to understand about valuation is that it's not that
important.
Founders who raise money at high valuations tend to be unduly proud
of it. Founders are often competitive people, and since valuation
is usually the only visible number attached to a startup, they end
up competing to raise money at the highest valuation. This is
stupid, because fundraising is not the test that matters. The real
test is revenue. Fundraising is just a means to that end. Being
proud of how well you did at fundraising is like being proud of
your college grades.
Not only is fundraising not the test that matters, valuation is not
even the thing to optimize about fundraising. The number one thing
you want from phase 2 fundraising is to get the money you need, so
you can get back to focusing on the real test, the success of your
company. Number two is good investors. Valuation is at best third.
The empirical evidence shows just how unimportant it is. Dropbox
and Airbnb are the most successful companies we've funded so far,
and they raised money after Y Combinator at premoney valuations of
$4 million and $2.6 million respectively. Prices are so much higher
now that if you can raise money at all you'll probably raise it at
higher valuations than Dropbox and Airbnb. So let that satisfy
your competitiveness. You're doing better than Dropbox and Airbnb!
At a test that doesn't matter.
When you start fundraising, your initial valuation (or valuation
cap) will be set by the deal you make with the first investor who
commits. You can increase the price for later investors, if you
get a lot of interest, but by default the valuation you got from
the first investor becomes your asking price.
So if you're raising money from multiple investors, as most companies
do in phase 2, you have to be careful to avoid raising the first
from an over-eager investor at a price you won't be able to
sustain. You can of course lower your price if you need to (in
which case you should give the same terms to investors who invested
earlier at a higher price), but you may lose a bunch of leads in
the process of realizing you need to do this.
What you can do if you have eager first investors is raise money
from them on an uncapped convertible note with an MFN clause. This
is essentially a way of saying that the valuation cap of the note
will be determined by the next investors you raise money from.
It will be easier to raise money at a lower valuation. It shouldn't
be, but it is. Since phase 2 prices vary at most 10x and the big
successes generate returns of at least 100x, investors should pick
startups entirely based on their estimate of the probability that
the company will be a big success and hardly at all on price. But
although it's a mistake for investors to care about price, a
significant number do. A startup that investors seem to like but
won't invest in at a cap of $x will have an easier time at $x/2.
[20]
Yes/no before valuation.
Some investors want to know what your valuation is before they even
talk to you about investing. If your valuation has already been
set by a prior investment at a specific valuation or cap, you can
tell them that number. But if it isn't set because you haven't
closed anyone yet, and they try to push you to name a price, resist
doing so. If this would be the first investor you've closed, then
this could be the tipping point of fundraising. That means closing
this investor is the first priority, and you need to get the
conversation onto that instead of being dragged sideways into a
discussion of price.
Fortunately there is a way to avoid naming a price in this situation.
And it is not just a negotiating trick; it's how you (both) should
be operating. Tell them that valuation is not the most important
thing to you and that you haven't thought much about it, that you
are looking for investors you want to partner with and who want to
partner with you, and that you should talk first about whether they
want to invest at all. Then if they decide they do want to invest,
you can figure out a price. But first things first.
Since valuation isn't that important and getting fundraising rolling
is, we usually tell founders to give the first investor who commits
as low a price as they need to. This is a safe technique so long
as you combine it with the next one.
[21]
Beware "valuation sensitive" investors.
Occasionally you'll encounter investors who describe themselves as
"valuation sensitive." What this means in practice is that they
are compulsive negotiators who will suck up a lot of your time
trying to push your price down. You should therefore never approach
such investors first. While you shouldn't chase high valuations,
you also don't want your valuation to be set artificially low because
the first investor who committed happened to be a compulsive
negotiator. Some such investors have value, but the time to approach
them is near the end of fundraising, when you're in a position to
say "this is the price everyone else has paid; take it or leave it"
and not mind if they leave it. This way, you'll not only get market
price, but it will also take less time.
Ideally you know which investors have a reputation for being
"valuation sensitive" and can postpone dealing with them till last,
but occasionally one you didn't know about will pop up early on.
The rule of doing breadth first search weighted by expected value
already tells you what to do in this case: slow down your interactions
with them.
There are a handful of investors who will try to invest at a lower
valuation even when your price has already been set. Lowering your
price is a backup plan you resort to when you discover you've let
the price get set too high to close all the money you need. So
you'd only want to talk to this sort of investor if you were about
to do that anyway. But since investor meetings have to be arranged
at least a few days in advance and you can't predict when you'll
need to resort to lowering your price, this means in practice that
you should approach this type of investor last if at all.
If you're surprised by a lowball offer, treat it as a backup offer
and delay responding to it. When someone makes an offer in good
faith, you have a moral obligation to respond in a reasonable time.
But lowballing you is a dick move that should be met with the
corresponding countermove.
Accept offers greedily.
I'm a little leery of using the term "greedily" when writing about
fundraising lest non-programmers misunderstand me, but a greedy
algorithm is simply one that doesn't try to look into the future.
A greedy algorithm takes the best of the options in front of it
right now. And that is how startups should approach fundraising
in phases 2 and later. Don't try to look into the future because
(a) the future is unpredictable, and indeed in this business you're
often being deliberately misled about it and (b) your first priority
in fundraising should be to get it finished and get back to work
anyway.
If someone makes you an acceptable offer, take it. If you have
multiple incompatible offers, take the best. Don't reject an
acceptable offer in the hope of getting a better one in the future.
These simple rules cover a wide variety of cases. If you're raising
money from many investors, roll them up as they say yes. As you
start to feel you've raised enough, the threshold for acceptable
will start to get higher.
In practice offers exist for stretches of time, not points. So
when you get an acceptable offer that would be incompatible with
others (e.g. an offer to invest most of the money you need), you
can tell the other investors you're talking to that you have an
offer good enough to accept, and give them a few days to make their
own. This could lose you some that might have made an offer if
they had more time. But by definition you don't care; the initial
offer was acceptable.
Some investors will try to prevent others from having time to decide
by giving you an "exploding" offer, meaning one that's only valid
for a few days. Offers from the very best investors explode less
frequently and less rapidly — Fred Wilson never gives exploding
offers, for example — because they're confident you'll pick
them. But lower-tier investors sometimes give offers with very
short fuses, because they believe no one who had other options would
choose them. A deadline of three working days is acceptable. You
shouldn't need more than that if you've been talking to investors
in parallel. But a deadline any shorter is a sign you're dealing
with a sketchy investor. You can usually call their bluff, and you
may need to.
[22]
It might seem that instead of accepting offers greedily, your goal
should be to get the best investors as partners. That is certainly
a good goal, but in phase 2 "get the best investors" only rarely
conflicts with "accept offers greedily," because the best investors
don't usually take any longer to decide than the others. The only
case where the two strategies give conflicting advice is when you
have to forgo an offer from an acceptable investor to see if you'll
get an offer from a better one. If you talk to investors in parallel
and push back on exploding offers with excessively short deadlines,
that will almost never happen. But if it does, "get the best
investors" is in the average case bad advice. The best investors
are also the most selective, because they get their pick of all the
startups. They reject nearly everyone they talk to, which means
in the average case it's a bad trade to exchange a definite offer
from an acceptable investor for a potential offer from a better
one.
(The situation is different in phase 1. You can't apply to all the
incubators in parallel, because some offset their schedules to
prevent this. In phase 1, "accept offers greedily" and "get the
best investors" do conflict, so if you want to apply to multiple
incubators, you should do it in such a way that the ones you want
most decide first.)
Sometimes when you're raising money from multiple investors, a
series A will emerge out of those conversations, and these rules
even cover what to do in that case. When an investor starts to
talk to you about a series A, keep taking smaller investments till
they actually give you a termsheet. There's no practical difficulty.
If the smaller investments are on convertible notes, they'll just
convert into the series A round. The series A investor won't like
having all these other random investors as bedfellows, but if it
bothers them so much they should get on with giving you a termsheet.
Till they do, you don't know for sure they will, and the greedy
algorithm tells you what to do.
[23]
Don't sell more than 25% in phase 2.
If you do well, you will probably raise a series A round eventually.
I say probably because things are changing with series A rounds.
Startups may start to skip them. But only one company we've funded
has so far, so tentatively assume the path to huge passes through
an A round.
[24]
Which means you should avoid doing things in earlier rounds that
will mess up raising an A round. For example, if you've sold more
than about 40% of your company total, it starts to get harder to
raise an A round, because VCs worry there will not be enough stock
left to keep the founders motivated.
Our rule of thumb is not to sell more than 25% in phase 2, on top
of whatever you sold in phase 1, which should be less than 15%. If
you're raising money on uncapped notes, you'll have to guess what
the eventual equity round valuation might be. Guess conservatively.
(Since the goal of this rule is to avoid messing up the series A,
there's obviously an exception if you end up raising a series A in
phase 2, as a handful of startups do.)
Have one person handle fundraising.
If you have multiple founders, pick one to handle fundraising so
the other(s) can keep working on the company. And since the danger
of fundraising is not the time taken up by the actual meetings but
that it becomes the top idea in your mind, the founder who handles
fundraising should make a conscious effort to insulate the other
founder(s) from the details of the process.
[25]
(If the founders mistrust one another, this could cause some friction.
But if the founders mistrust one another, you have worse problems
to worry about than how to organize fundraising.)
The founder who handles fundraising should be the CEO, who should
in turn be the most formidable of the founders. Even if the CEO
is a programmer and another founder is a salesperson? Yes. If you
happen to be that type of founding team, you're effectively a single
founder when it comes to fundraising.
It's ok to bring all the founders to meet an investor who will
invest a lot, and who needs this meeting as the final step before
deciding. But wait till that point. Introducing an investor to
your cofounder(s) should be like introducing a girl/boyfriend to
your parents — something you do only when things reach a certain
stage of seriousness.
Even if there are still one or more founders focusing on the company
during fundraising, growth will slow. But try to get as much growth
as you can, because fundraising is a segment of time, not a point,
and what happens to the company during that time affects the outcome.
If your numbers grow significantly between two investor meetings,
investors will be hot to close, and if your numbers are flat or
down they'll start to get cold feet.
You'll need an executive summary and (maybe) a deck.
Traditionally phase 2 fundraising consists of presenting a slide
deck in person to investors. Sequoia describes what such a deck
should contain, and
since they're the customer you can take their word for it.
I say "traditionally" because I'm ambivalent about decks, and (though
perhaps this is wishful thinking) they seem to be on the way out.
A lot of the most successful startups we fund never make decks in
phase 2. They just talk to investors and explain what they plan
to do. Fundraising usually takes off fast for the startups that
are most successful at it, and they're thus able to excuse themselves
by saying that they haven't had time to make a deck.
You'll also want an executive summary, which should be no more than
a page long and describe in the most matter of fact language what
you plan to do, why it's a good idea, and what progress you've made
so far. The point of the summary is to remind the investor (who
may have met many startups that day) what you talked about.
Assume that if you give someone a copy of your deck or executive
summary, it will be passed on to whoever you'd least like to have
it. But don't refuse on that account to give copies to investors
you meet. You just have to treat such leaks as a cost of doing
business. In practice it's not that high a cost. Though founders
are rightly indignant when their plans get leaked to competitors,
I can't think of a startup whose outcome has been affected by it.
Sometimes an investor will ask you to send them your deck and/or
executive summary before they decide whether to meet with you. I
wouldn't do that. It's a sign they're not really interested.
Stop fundraising when it stops working.
When do you stop fundraising? Ideally when you've raised enough.
But what if you haven't raised as much as you'd like? When do you
give up?
It's hard to give general advice about this, because there have
been cases of startups that kept trying to raise money even when
it seemed hopeless, and miraculously succeeded. But what I usually
tell founders is to stop fundraising when you start to get a lot
of air in the straw. When you're drinking through a straw, you can
tell when you get to the end of the liquid because you start to get
a lot of air in the straw. When your fundraising options run out,
they usually run out in the same way. Don't keep sucking on the
straw if you're just getting air. It's not going to get better.
Don't get addicted to fundraising.
Fundraising is a chore for most founders, but some find it more
interesting than working on their startup. The work at an early
stage startup often consists of unglamorous schleps. Whereas fundraising, when it's
going well, can be quite the opposite. Instead of sitting in your
grubby apartment listening to users complain about bugs in your
software, you're being offered millions of dollars by famous investors
over lunch at a nice restaurant.
[26]
The danger of fundraising is particularly acute for people who are
good at it. It's always fun to work on something you're good at.
If you're one of these people, beware. Fundraising is not what
will make your company successful. Listening to users complain
about bugs in your software is what will make you successful. And
the big danger of getting addicted to fundraising is not merely
that you'll spend too long on it or raise too much money. It's
that you'll start to think of yourself as being already successful,
and lose your taste for the schleps you need to undertake to actually
be successful. Startups can be destroyed by this.
When I see a startup with young founders that is fabulously successful
at fundraising, I mentally decrease my estimate of the probability
that they'll succeed. The press may be writing about them as if
they'd been anointed as the next Google, but I'm thinking "this is
going to end badly."
Don't raise too much.
Though only a handful of startups have to worry about this, it is
possible to raise too much. The dangers of raising too much are
subtle but insidious. One is that it will set impossibly high
expectations. If you raise an excessive amount of money, it will
be at a high valuation, and the danger of raising money at too high
a valuation is that you won't be able to increase it sufficiently
the next time you raise money.
A company's valuation is expected to rise each time it raises money.
If not it's a sign of a company in trouble, which makes you
unattractive to investors. So if you raise money in phase 2 at a
post-money valuation of $30 million, the pre-money valuation of
your next round, if you want to raise one, is going to have to be
at least $50 million. And you have to be doing really, really well
to raise money at $50 million.
It's very dangerous to let the competitiveness of your current round
set the performance threshold you have to meet to raise your next
one, because the two are only loosely coupled.
But the money itself may be more dangerous than the valuation. The
more you raise, the more you spend, and spending a lot of money can
be disastrous for an early stage startup. Spending a lot makes it
harder to become profitable, and perhaps even worse, it makes you
more rigid, because the main way to spend money is people, and the
more people you have, the harder it is to change directions. So
if you do raise a huge amount of money, don't spend it. (You will
find that advice almost impossible to follow, so hot will be the
money burning a hole in your pocket, but I feel obliged at least
to try.)
Be nice.
Startups raising money occasionally alienate investors by seeming
arrogant. Sometimes because they are arrogant, and sometimes because
they're noobs clumsily attempting to mimic the toughness they've
observed in experienced founders.
It's a mistake to behave arrogantly to investors. While there are
certain situations in which certain investors like certain kinds
of arrogance, investors vary greatly in this respect, and a flick
of the whip that will bring one to heel will make another roar with
indignation. The only safe strategy is never to seem arrogant at
all.
That will require some diplomacy if you follow the advice I've given
here, because the advice I've given is essentially how to play
hardball back. When you refuse to meet an investor because you're
not in fundraising mode, or slow down your interactions with an
investor who moves too slow, or treat a contingent offer as the no
it actually is and then, by accepting offers greedily, end up leaving
that investor out, you're going to be doing things investors don't
like. So you must cushion the blow with soft words. At YC we tell
startups they can blame us. And now that I've written this, everyone
else can blame me if they want. That plus the inexperience card
should work in most situations: sorry, we think you're great, but
PG said startups shouldn't ___, and since we're new to fundraising,
we feel like we have to play it safe.
The danger of behaving arrogantly is greatest when you're doing
well. When everyone wants you, it's hard not to let it go to your
head. Especially if till recently no one wanted you. But restrain
yourself. The startup world is a small place, and startups have
lots of ups and downs. This is a domain where it's more true than
usual that pride goeth before a fall.
[27]
Be nice when investors reject you as well. The best investors are
not wedded to their initial opinion of you. If they reject you in
phase 2 and you end up doing well, they'll often invest in phase
3. In fact investors who reject you are some of your warmest leads
for future fundraising. Any investor who spent significant time
deciding probably came close to saying yes. Often you have some
internal champion who only needs a little more evidence to convince
the skeptics. So it's wise not merely to be nice to investors who
reject you, but (unless they behaved badly) to treat it as the
beginning of a relationship.
The bar will be higher next time.
Assume the money you raise in phase 2 will be the last you ever
raise. You must make it to profitability on this money if you can.
Over the past several years, the investment community has evolved
from a strategy of anointing a small number of winners early and
then supporting them for years to a strategy of spraying money at
early stage startups and then ruthlessly culling them at the next
stage. This is probably the optimal strategy for investors. It's
too hard to pick winners early on. Better to let the market do it
for you. But it often comes as a surprise to startups how much
harder it is to raise money in phase 3.
When your company is only a couple months old, all it has to be is
a promising experiment that's worth funding to see how it turns
out. The next time you raise money, the experiment has to have
worked. You have to be on a trajectory that leads to going public.
And while there are some ideas where the proof that the experiment
worked might consist of e.g. query response times, usually the proof
is profitability. Usually phase 3 fundraising has to be type A
fundraising.
In practice there are two ways startups hose themselves between
phases 2 and 3. Some are just too slow to become profitable. They
raise enough money to last for two years. There doesn't seem any
particular urgency to be profitable. So they don't make any effort
to make money for a year. But by that time, not making money has
become habitual. When they finally decide to try, they find they
can't.
The other way companies hose themselves is by letting their expenses
grow too fast. Which almost always means hiring too many people.
You usually shouldn't go out and hire 8 people as soon as you raise
money at phase 2. Usually you want to wait till you have growth
(and thus usually revenues) to justify them. A lot of VCs will
encourage you to hire aggressively. VCs generally tell you to spend
too much, partly because as money people they err on the side of
solving problems by spending money, and partly because they want
you to sell them more of your company in subsequent rounds. Don't
listen to them.
Don't make things complicated.
I realize it may seem odd to sum up this huge treatise by saying
that my overall advice is not to make fundraising too complicated,
but if you go back and look at this list you'll see it's basically
a simple recipe with a lot of implications and edge cases. Avoid
investors till you decide to raise money, and then when you do,
talk to them all in parallel, prioritized by expected value, and
accept offers greedily. That's fundraising in one sentence. Don't
introduce complicated optimizations, and don't let investors introduce
complications either.
Fundraising is not what will make you successful. It's just a means
to an end. Your primary goal should be to get it over with and get
back to what will make you successful — making things and talking
to users — and the path I've described will for most startups
be the surest way to that destination.
Be good, take care of yourselves, and don't leave the path.
Notes
[1]
The worst explosions happen when unpromising-seeming startups
encounter mediocre investors. Good investors don't lead startups
on; their reputations are too valuable. And startups that seem
promising can usually get enough money from good investors that
they don't have to talk to mediocre ones. It is the unpromising-seeming
startups that have to resort to raising money from mediocre investors.
And it's particularly damaging when these investors flake, because
unpromising-seeming startups are usually more desperate for money.
(Not all unpromising-seeming startups do badly. Some are merely
ugly ducklings in the sense that they violate current startup
fashions.)
[2]
One YC founder told me:
I think in general we've done ok at fundraising, but I managed to screw up twice at the exact same thing — trying to focus on building the company and fundraising at the same time.[3] There is one subtle danger you have to watch out for here, which I warn about later: beware of getting too high a valuation from an eager investor, lest that set an impossibly high target when raising additional money.
This is the most important section. I think it might bear stating even more clearly. "Investors will deliberately affect more interest than they have to preserve optionality. If an investor seems very interested in you, they still probably won't invest. The solution for this is to assume the worst — that an investor is just feigning interest — until you get a definite commitment."[10] Though you should probably pack investor meetings as closely as you can, Jeff Byun mentions one reason not to: if you pack investor meetings too closely, you'll have less time for your pitch to evolve.
Investors are professional negotiators and can negotiate on the spot very easily. If only one founder is in the room, you can say "I need to circle back with my co-founder" before making any commitments. I used to do this all the time.[26] You'll be lucky if fundraising feels pleasant enough to become addictive. More often you have to worry about the other extreme — becoming demoralized when investors reject you. As one (very successful) YC founder wrote after reading a draft of this:
It's hard to mentally deal with the sheer scale of rejection in fundraising and if you are not in the right mindset you will fail. Users may love you but these supposedly smart investors may not understand you at all. At this point for me, rejection still rankles but I've come to accept that investors are just not super thoughtful for the most part and you need to play the game according to certain somewhat depressing rules (many of which you are listing) in order to win.[27] The actual sentence in the King James Bible is "Pride goeth before destruction, and an haughty spirit before a fall."
October 2014
(This essay is derived from a guest lecture in Sam Altman's startup class at
Stanford. It's intended for college students, but much of it is
applicable to potential founders at other ages.)
One of the advantages of having kids is that when you have to give
advice, you can ask yourself "what would I tell my own kids?" My
kids are little, but I can imagine what I'd tell them about startups
if they were in college, and that's what I'm going to tell you.
Startups are very counterintuitive. I'm not sure why. Maybe it's
just because knowledge about them hasn't permeated our culture yet.
But whatever the reason, starting a startup is a task where you
can't always trust your instincts.
It's like skiing in that way. When you first try skiing and you
want to slow down, your instinct is to lean back. But if you lean
back on skis you fly down the hill out of control. So part of
learning to ski is learning to suppress that impulse. Eventually
you get new habits, but at first it takes a conscious effort. At
first there's a list of things you're trying to remember as you
start down the hill.
Startups are as unnatural as skiing, so there's a similar list for
startups. Here I'm going to give you the first part of it — the things
to remember if you want to prepare yourself to start a startup.
Counterintuitive
The first item on it is the fact I already mentioned: that startups
are so weird that if you trust your instincts, you'll make a lot
of mistakes. If you know nothing more than this, you may at least
pause before making them.
When I was running Y Combinator I used to joke that our function
was to tell founders things they would ignore. It's really true.
Batch after batch, the YC partners warn founders about mistakes
they're about to make, and the founders ignore them, and then come
back a year later and say "I wish we'd listened."
Why do the founders ignore the partners' advice? Well, that's the
thing about counterintuitive ideas: they contradict your intuitions.
They seem wrong. So of course your first impulse is to disregard
them. And in fact my joking description is not merely the curse
of Y Combinator but part of its raison d'etre. If founders' instincts
already gave them the right answers, they wouldn't need us. You
only need other people to give you advice that surprises you. That's
why there are a lot of ski instructors and not many running
instructors.
[1]
You can, however, trust your instincts about people. And in fact
one of the most common mistakes young founders make is not to
do that enough. They get involved with people who seem impressive,
but about whom they feel some misgivings personally. Later when
things blow up they say "I knew there was something off about him,
but I ignored it because he seemed so impressive."
If you're thinking about getting involved with someone — as a
cofounder, an employee, an investor, or an acquirer — and you
have misgivings about them, trust your gut. If someone seems
slippery, or bogus, or a jerk, don't ignore it.
This is one case where it pays to be self-indulgent. Work with
people you genuinely like, and you've known long enough to be sure.
Expertise
The second counterintuitive point is that it's not that important
to know a lot about startups. The way to succeed in a startup is
not to be an expert on startups, but to be an expert on your users
and the problem you're solving for them.
Mark Zuckerberg didn't succeed because he was an expert on startups.
He succeeded despite being a complete noob at startups, because he
understood his users really well.
If you don't know anything about, say, how to raise an angel round,
don't feel bad on that account. That sort of thing you can learn
when you need to, and forget after you've done it.
In fact, I worry it's not merely unnecessary to learn in great
detail about the mechanics of startups, but possibly somewhat
dangerous. If I met an undergrad who knew all about convertible
notes and employee agreements and (God forbid) class FF stock, I
wouldn't think "here is someone who is way ahead of their peers."
It would set off alarms. Because another of the characteristic
mistakes of young founders is to go through the motions of starting
a startup. They make up some plausible-sounding idea, raise money
at a good valuation, rent a cool office, hire a bunch of people.
From the outside that seems like what startups do. But the next
step after rent a cool office and hire a bunch of people is: gradually
realize how completely fucked they are, because while imitating all
the outward forms of a startup they have neglected the one thing
that's actually essential: making something people want.
Game
We saw this happen so often that we made up a name for it: playing
house. Eventually I realized why it was happening. The reason
young founders go through the motions of starting a startup is
because that's what they've been trained to do for their whole lives
up to that point. Think about what you have to do to get into
college, for example. Extracurricular activities, check. Even in
college classes most of the work is as artificial as running laps.
I'm not attacking the educational system for being this way. There
will always be a certain amount of fakeness in the work you do when
you're being taught something, and if you measure their performance
it's inevitable that people will exploit the difference to the point
where much of what you're measuring is artifacts of the fakeness.
I confess I did it myself in college. I found that in a lot of
classes there might only be 20 or 30 ideas that were the right shape
to make good exam questions. The way I studied for exams in these
classes was not (except incidentally) to master the material taught
in the class, but to make a list of potential exam questions and
work out the answers in advance. When I walked into the final, the
main thing I'd be feeling was curiosity about which of my questions
would turn up on the exam. It was like a game.
It's not surprising that after being trained for their whole lives
to play such games, young founders' first impulse on starting a
startup is to try to figure out the tricks for winning at this new
game. Since fundraising appears to be the measure of success for
startups (another classic noob mistake), they always want to know what the
tricks are for convincing investors. We tell them the best way to
convince investors is to make a startup
that's actually doing well, meaning growing fast, and then simply
tell investors so. Then they want to know what the tricks are for
growing fast. And we have to tell them the best way to do that is
simply to make something people want.
So many of the conversations YC partners have with young founders
begin with the founder asking "How do we..." and the partner replying
"Just..."
Why do the founders always make things so complicated? The reason,
I realized, is that they're looking for the trick.
So this is the third counterintuitive thing to remember about
startups: starting a startup is where gaming the system stops
working. Gaming the system may continue to work if you go to work
for a big company. Depending on how broken the company is, you can
succeed by sucking up to the right people, giving the impression
of productivity, and so on.
[2]
But that doesn't work with startups.
There is no boss to trick, only users, and all users care about is
whether your product does what they want. Startups are as impersonal
as physics. You have to make something people want, and you prosper
only to the extent you do.
The dangerous thing is, faking does work to some degree on investors.
If you're super good at sounding like you know what you're talking
about, you can fool investors for at least one and perhaps even two
rounds of funding. But it's not in your interest to. The company
is ultimately doomed. All you're doing is wasting your own time
riding it down.
So stop looking for the trick. There are tricks in startups, as
there are in any domain, but they are an order of magnitude less
important than solving the real problem. A founder who knows nothing
about fundraising but has made something users love will have an
easier time raising money than one who knows every trick in the
book but has a flat usage graph. And more importantly, the founder
who has made something users love is the one who will go on to
succeed after raising the money.
Though in a sense it's bad news in that you're deprived of one of
your most powerful weapons, I think it's exciting that gaming the
system stops working when you start a startup. It's exciting that
there even exist parts of the world where you win by doing good
work. Imagine how depressing the world would be if it were all
like school and big companies, where you either have to spend a lot
of time on bullshit things or lose to people who do.
[3]
I would
have been delighted if I'd realized in college that there were parts
of the real world where gaming the system mattered less than others,
and a few where it hardly mattered at all. But there are, and this
variation is one of the most important things to consider when
you're thinking about your future. How do you win in each type of
work, and what would you like to win by doing?
[4]
All-Consuming
That brings us to our fourth counterintuitive point: startups are
all-consuming. If you start a startup, it will take over your life
to a degree you cannot imagine. And if your startup succeeds, it
will take over your life for a long time: for several years at the
very least, maybe for a decade, maybe for the rest of your working
life. So there is a real opportunity cost here.
Larry Page may seem to have an enviable life, but there are aspects
of it that are unenviable. Basically at 25 he started running as
fast as he could and it must seem to him that he hasn't stopped to
catch his breath since. Every day new shit happens in the Google
empire that only the CEO can deal with, and he, as CEO, has to deal
with it. If he goes on vacation for even a week, a whole week's
backlog of shit accumulates. And he has to bear this uncomplainingly,
partly because as the company's daddy he can never show fear or
weakness, and partly because billionaires get less than zero sympathy
if they talk about having difficult lives. Which has the strange
side effect that the difficulty of being a successful startup founder
is concealed from almost everyone except those who've done it.
Y Combinator has now funded several companies that can be called
big successes, and in every single case the founders say the same
thing. It never gets any easier. The nature of the problems change.
You're worrying about construction delays at your London office
instead of the broken air conditioner in your studio apartment.
But the total volume of worry never decreases; if anything it
increases.
Starting a successful startup is similar to having kids in that
it's like a button you push that changes your life irrevocably.
And while it's truly wonderful having kids, there are a lot of
things that are easier to do before you have them than after. Many
of which will make you a better parent when you do have kids. And
since you can delay pushing the button for a while, most people in
rich countries do.
Yet when it comes to startups, a lot of people seem to think they're
supposed to start them while they're still in college. Are you
crazy? And what are the universities thinking? They go out of
their way to ensure their students are well supplied with contraceptives,
and yet they're setting up entrepreneurship programs and startup
incubators left and right.
To be fair, the universities have their hand forced here. A lot
of incoming students are interested in startups. Universities are,
at least de facto, expected to prepare them for their careers. So
students who want to start startups hope universities can teach
them about startups. And whether universities can do this or not,
there's some pressure to claim they can, lest they lose applicants
to other universities that do.
Can universities teach students about startups? Yes and no. They
can teach students about startups, but as I explained before, this
is not what you need to know. What you need to learn about are the
needs of your own users, and you can't do that until you actually
start the company.
[5]
So starting a startup is intrinsically
something you can only really learn by doing it. And it's impossible
to do that in college, for the reason I just explained: startups
take over your life. You can't start a startup for real as a
student, because if you start a startup for real you're not a student
anymore. You may be nominally a student for a bit, but you won't even
be that for long.
[6]
Given this dichotomy, which of the two paths should you take? Be
a real student and not start a startup, or start a real startup and
not be a student? I can answer that one for you. Do not start a
startup in college. How to start a startup is just a subset of a
bigger problem you're trying to solve: how to have a good life.
And though starting a startup can be part of a good life for a lot
of ambitious people, age 20 is not the optimal time to do it.
Starting a startup is like a brutally fast depth-first search. Most
people should still be searching breadth-first at 20.
You can do things in your early 20s that you can't do as well before
or after, like plunge deeply into projects on a whim and travel
super cheaply with no sense of a deadline. For unambitious people,
this sort of thing is the dreaded "failure to launch," but for the
ambitious ones it can be an incomparably valuable sort of exploration.
If you start a startup at 20 and you're sufficiently successful,
you'll never get to do it.
[7]
Mark Zuckerberg will never get to bum around a foreign country. He
can do other things most people can't, like charter jets to fly him
to foreign countries. But success has taken a lot of the serendipity
out of his life. Facebook is running him as much as he's running
Facebook. And while it can be very cool to be in the grip of a
project you consider your life's work, there are advantages to
serendipity too, especially early in life. Among other things it
gives you more options to choose your life's work from.
There's not even a tradeoff here. You're not sacrificing anything
if you forgo starting a startup at 20, because you're more likely
to succeed if you wait. In the unlikely case that you're 20 and
one of your side projects takes off like Facebook did, you'll face
a choice of running with it or not, and it may be reasonable to run
with it. But the usual way startups take off is for the founders
to make them take off, and it's gratuitously
stupid to do that at 20.
Try
Should you do it at any age? I realize I've made startups sound
pretty hard. If I haven't, let me try again: starting a startup
is really hard. What if it's too hard? How can you tell if you're
up to this challenge?
The answer is the fifth counterintuitive point: you can't tell. Your
life so far may have given you some idea what your prospects might
be if you tried to become a mathematician, or a professional football
player. But unless you've had a very strange life you haven't done
much that was like being a startup founder.
Starting a startup will change you a lot. So what you're trying
to estimate is not just what you are, but what you could grow into,
and who can do that?
For the past 9 years it was my job to predict whether people would
have what it took to start successful startups. It was easy to
tell how smart they were, and most people reading this will be over
that threshold. The hard part was predicting how
The founders sometimes think they know. Some arrive feeling sure
they will ace Y Combinator just as they've aced every one of the (few,
artificial, easy) tests they've faced in life so far. Others arrive
wondering how they got in, and hoping YC doesn't discover whatever
mistake caused it to accept them. But there is little correlation
between founders' initial attitudes and how well their companies
do.
I've read that the same is true in the military — that the
swaggering recruits are no more likely to turn out to be really
tough than the quiet ones. And probably for the same reason: that
the tests involved are so different from the ones in their previous
lives.
If you're absolutely terrified of starting a startup, you probably
shouldn't do it. But if you're merely unsure whether you're up to
it, the only way to find out is to try. Just not now.
Ideas
So if you want to start a startup one day, what should you do in
college? There are only two things you need initially: an idea and
cofounders. And the m.o. for getting both is the same. Which leads
to our sixth and last counterintuitive point: that the way to get
startup ideas is not to try to think of startup ideas.
I've written a whole essay on this,
so I won't repeat it all here. But the short version is that if
you make a conscious effort to think of startup ideas, the ideas
you come up with will not merely be bad, but bad and plausible-sounding,
meaning you'll waste a lot of time on them before realizing they're
bad.
The way to come up with good startup ideas is to take a step back.
Instead of making a conscious effort to think of startup ideas,
turn your mind into the type that startup ideas form in without any
conscious effort. In fact, so unconsciously that you don't even
realize at first that they're startup ideas.
This is not only possible, it's how Apple, Yahoo, Google, and
Facebook all got started. None of these companies were even meant
to be companies at first. They were all just side projects. The
best startups almost have to start as side projects, because great
ideas tend to be such outliers that your conscious mind would reject
them as ideas for companies.
Ok, so how do you turn your mind into the type that startup ideas
form in unconsciously? (1) Learn a lot about things that matter,
then (2) work on problems that interest you (3) with people you
like and respect. The third part, incidentally, is how you get
cofounders at the same time as the idea.
The first time I wrote that paragraph, instead of "learn a lot about
things that matter," I wrote "become good at some technology." But
that prescription, though sufficient, is too narrow. What was
special about Brian Chesky and Joe Gebbia was not that they were
experts in technology. They were good at design, and perhaps even
more importantly, they were good at organizing groups and making
projects happen. So you don't have to work on technology per se,
so long as you work on problems demanding enough to stretch you.
What kind of problems are those? That is very hard to answer in
the general case. History is full of examples of young people who
were working on important problems that no
one else at the time thought were important, and in particular
that their parents didn't think were important. On the other hand,
history is even fuller of examples of parents who thought their
kids were wasting their time and who were right. So how do you
know when you're working on real stuff?
[8]
I know how I know. Real problems are interesting, and I am
self-indulgent in the sense that I always want to work on interesting
things, even if no one else cares about them (in fact, especially
if no one else cares about them), and find it very hard to make
myself work on boring things, even if they're supposed to be
important.
My life is full of case after case where I worked on something just
because it seemed interesting, and it turned out later to be useful
in some worldly way. Y
Combinator itself was something I only did because it seemed
interesting. So I seem to have some sort of internal compass that
helps me out. But I don't know what other people have in their
heads. Maybe if I think more about this I can come up with heuristics
for recognizing genuinely interesting problems, but for the moment
the best I can offer is the hopelessly question-begging advice that
if you have a taste for genuinely interesting problems, indulging
it energetically is the best way to prepare yourself for a startup.
And indeed, probably also the best way to live.
[9]
But although I can't explain in the general case what counts as an
interesting problem, I can tell you about a large subset of them.
If you think of technology as something that's spreading like a
sort of fractal stain, every moving point on the edge represents
an interesting problem. So one guaranteed way to turn your mind
into the type that has good startup ideas is to get yourself to the
leading edge of some technology — to cause yourself, as Paul
Buchheit put it, to "live in the future." When you reach that point,
ideas that will seem to other people uncannily prescient will seem
obvious to you. You may not realize they're startup ideas, but
you'll know they're something that ought to exist.
For example, back at Harvard in the mid 90s a fellow grad student
of my friends Robert and Trevor wrote his own voice over IP software.
He didn't mean it to be a startup, and he never tried to turn it
into one. He just wanted to talk to his girlfriend in Taiwan without
paying for long distance calls, and since he was an expert on
networks it seemed obvious to him that the way to do it was turn
the sound into packets and ship it over the Internet. He never did
any more with his software than talk to his girlfriend, but this
is exactly the way the best startups get started.
So strangely enough the optimal thing to do in college if you want
to be a successful startup founder is not some sort of new, vocational
version of college focused on "entrepreneurship." It's the classic
version of college as education for its own sake. If you want to
start a startup after college, what you should do in college is
learn powerful things. And if you have genuine intellectual
curiosity, that's what you'll naturally tend to do if you just
follow your own inclinations.
[10]
The component of entrepreneurship that really matters is domain
expertise. The way to become Larry Page was to become an expert
on search. And the way to become an expert on search was to be
driven by genuine curiosity, not some ulterior motive.
At its best, starting a startup is merely an ulterior motive for
curiosity. And you'll do it best if you introduce the ulterior
motive toward the end of the process.
So here is the ultimate advice for young would-be startup founders,
boiled down to two words: just learn.
Notes
[1]
Some founders listen more than others, and this tends to be a
predictor of success. One of the things I
remember about the Airbnbs during YC is how intently they listened.
[2]
In fact, this is one of the reasons startups are possible. If
big companies weren't plagued by internal inefficiencies, they'd
be proportionately more effective, leaving less room for startups.
[3]
In a startup you have to spend a lot of time on schleps, but this sort of work is merely
unglamorous, not bogus.
[4]
What should you do if your true calling is gaming the system?
Management consulting.
[5]
The company may not be incorporated, but if you start to get
significant numbers of users, you've started it, whether you realize
it yet or not.
[6]
It shouldn't be that surprising that colleges can't teach
students how to be good startup founders, because they can't teach
them how to be good employees either.
The way universities "teach" students how to be employees is to
hand off the task to companies via internship programs. But you
couldn't do the equivalent thing for startups, because by definition
if the students did well they would never come back.
[7]
Charles Darwin was 22 when he received an invitation to travel
aboard the HMS Beagle as a naturalist. It was only because he was
otherwise unoccupied, to a degree that alarmed his family, that he
could accept it. And yet if he hadn't we probably would not know
his name.
[8]
Parents can sometimes be especially conservative in this
department. There are some whose definition of important problems
includes only those on the critical path to med school.
[9]
I did manage to think of a heuristic for detecting whether you
have a taste for interesting ideas: whether you find known boring
ideas intolerable. Could you endure studying literary theory, or
working in middle management at a large company?
[10]
In fact, if your goal is to start a startup, you can stick
even more closely to the ideal of a liberal education than past
generations have. Back when students focused mainly on getting a
job after college, they thought at least a little about how the
courses they took might look to an employer. And perhaps even
worse, they might shy away from taking a difficult class lest they
get a low grade, which would harm their all-important GPA. Good
news: users don't care what your GPA
was. And I've never heard of investors caring either. Y Combinator
certainly never asks what classes you took in college or what grades
you got in them.
Thanks to Sam Altman, Paul Buchheit, John Collison, Patrick
Collison, Jessica Livingston, Robert Morris, Geoff Ralston, and
Fred Wilson for reading drafts of this.
Hilbert had no patience with mathematical lectures which filled the students with facts but did not teach them how to frame a problem and solve it. He often used to tell them that "a perfect formulation of a problem is already half its solution."That has always seemed to me an important point, and I was even more convinced of it after hearing it confirmed by Hilbert.
Boys, do you know why I never became a drunkard? Because I never took the first drink.Do you want to sell your company right now? Not eventually, right now. If not, just don't take the first meeting. They won't be offended. And you in turn will be guaranteed to be spared one of the worst experiences that can happen to a startup.
The mercurial Spaniard himself declared: "After Altamira, all is decadence."It's from Neil Oliver's A History of Ancient Britain. I feel bad making an example of this book, because it's no worse than lots of others. But just imagine calling Picasso "the mercurial Spaniard" when talking to a friend. Even one sentence of this would raise eyebrows in conversation. And yet people write whole books of it.
The day of combination is here to stay. Individualism has gone, never to return.He turned out to be mistaken, but he seemed right for the next hundred years.
...those at the top are grabbing an increasing fraction of the nation's income — so much of a larger share that what's left over for the rest is diminished.... [1]Other times it's more unconscious. But the unconscious form is very widespread. I think because we grow up in a world where the pie fallacy is actually true. To kids, wealth is a fixed pie that's shared out, and if one person gets more, it's at the expense of another. It takes a conscious effort to remind oneself that the real world doesn't work that way.
It is amusing to watch how a passion will grow upon a man. During those two years it was the ambition of my life to cover the country with rural letter-carriers.Even Newton occasionally sensed the degree of his obsessiveness. After computing pi to 15 digits, he wrote in a letter to a friend:
I am ashamed to tell you to how many figures I carried these computations, having no other business at the time.Incidentally, Ramanujan was also a compulsive calculator. As Kanigel writes in his excellent biography:
One Ramanujan scholar, B. M. Wilson, later told how Ramanujan's research into number theory was often "preceded by a table of numerical results, carried usually to a length from which most of us would shrink."[7] Working to understand the natural world counts as creating rather than consuming.
I sometimes ask students what their position on slavery would have been had they been white and living in the South before abolition. Guess what? They all would have been abolitionists! They all would have bravely spoken out against slavery, and worked tirelessly against it.He's too polite to say so, but of course they wouldn't. And indeed, our default assumption should not merely be that his students would, on average, have behaved the same way people did at the time, but that the ones who are aggressively conventional-minded today would have been aggressively conventional-minded then too. In other words, that they'd not only not have fought against slavery, but that they'd have been among its staunchest defenders.
A wealth tax will usually have a threshold at which it starts.
How much difference would a high threshold make? To model that,
we need to make some assumptions about the initial value of
your stock and the growth rate.
Suppose your stock is initially
worth $2 million, and the company's trajectory is as follows:
the value of your stock grows 3x for 2 years, then 2x for 2 years,
then 50% for 2 years, after
which you just get a typical public company growth rate,
which we'll call 8%.
[1]
Suppose the wealth tax threshold is
$50 million. How much stock does the government take now?
It may at first seem surprising that such apparently small tax rates
produce such dramatic effects. A 2% wealth tax with a $50 million
threshold takes about two thirds of a successful founder's stock.
The reason wealth taxes have such dramatic effects is that they're
applied over and over to the same money. Income tax
happens every year, but only to that year's income. Whereas if you
live for 60 years after acquiring some asset, a wealth tax will tax
that same asset 60 times. A wealth tax compounds.
Note
[1]
In practice, eventually some of this 8% would come in the form of
dividends, which are taxed as income at issue, so this model actually
represents the most optimistic case for the founder.
Good work is not done by "humble" men. It is one of the first duties of a professor, for example, in any subject, to exaggerate a little both the importance of his subject and his importance in it.If you overestimate the importance of what you're working on, that will compensate for your mistakenly harsh judgment of your initial results. If you look at something that's 20% of the way to a goal worth 100 and conclude that it's 10% of the way to a goal worth 200, your estimate of its expected value is correct even though both components are wrong.
I think there may be something related to being a hack that can be powerful � the idea of making the tenuousness and implausibility a feature. "Yes, it's a bit ridiculous, right? I'm just trying to see how far such a naive approach can get." YC seemed to me to have this characteristic.[5] Much of the advantage of switching from physical to digital media is not the software per se but that it lets you start something new with little upfront commitment.
The value of a medium without a vast gulf between the early work and the final work is exemplified in game mods. The original Quake game was a golden age for mods, because everything was very flexible, but so crude due to technical limitations, that quick hacks to try out a gameplay idea weren't all that far from the official game. Many careers were born from that, but as the commercial game quality improved over the years, it became almost a full time job to make a successful mod that would be appreciated by the community. This was dramatically reversed with Minecraft and later Roblox, where the entire esthetic of the experience was so explicitly crude that innovative gameplay concepts became the overriding value. These "crude" game mods by single authors are now often bigger deals than massive professional teams' work.[7] Lisa Randall suggests that we
treat new things as experiments. That way there's no such thing as failing, since you learn something no matter what. You treat it like an experiment in the sense that if it really rules something out, you give up and move on, but if there's some way to vary it to make it work better, go ahead and do that[8] Michael Nielsen points out that the internet has made this easier, because you can see programmers' first commits, musicians' first videos, and so on.
with each new book of mine I have, as I say, the feeling that this time I have picked a lemon in the garden of literature. A good thing, really, I suppose. Keeps one up on one's toes and makes one rewrite every sentence ten times. Or in many cases twenty times.Sounds a bit extreme, you think. And yet Bill Gates sounds even more extreme. Not one day off in ten years? These two had about as much natural ability as anyone could have, and yet they also worked about as hard as anyone could work. You need both.
I think around age 13 or 14. I have a clear memory from around then of sitting in the sitting room, staring outside, and wondering why I was wasting my summer holiday.Perhaps something changes at adolescence. That would make sense.
I do not remember having felt, as a boy, any passion for mathematics, and such notions as I may have had of the career of a mathematician were far from noble. I thought of mathematics in terms of examinations and scholarships: I wanted to beat other boys, and this seemed to be the way in which I could do so most decisively.He didn't learn what math was really about till part way through college, when he read Jordan's Cours d'analyse.
I shall never forget the astonishment with which I read that remarkable work, the first inspiration for so many mathematicians of my generation, and learnt for the first time as I read it what mathematics really meant.There are two separate kinds of fakeness you need to learn to discount in order to understand what real work is. One is the kind Hardy encountered in school. Subjects get distorted when they're adapted to be taught to kids — often so distorted that they're nothing like the work done by actual practitioners. [3] The other kind of fakeness is intrinsic to certain types of work. Some types of work are inherently bogus, or at best mere busywork.
Supported comfortably, Newton was free to devote himself wholly to whatever he chose. To remain on, he had only to avoid the three unforgivable sins: crime, heresy, and marriage. [1]The first time I read that, in the 1990s, it sounded amusingly medieval. How strange, to have to avoid committing heresy. But when I reread it 20 years later it sounded like a description of contemporary employment.
Explain what you've learned from users.That tests a lot of things: whether you're paying attention to users, how well you understand them, and even how much they need what you're making.
The best lack all conviction, while the worst[21] Derived from Linus Pauling's "If you want to have good ideas, you must have many ideas."
Are full of passionate intensity.
If you're thinking without writing, you only think you're thinking.So a world divided into writes and write-nots is more dangerous than it sounds. It will be a world of thinks and think-nots. I know which half I want to be in, and I bet you do too.
A self-righteously moralistic person who behaves as if superior to others.This sense of the word originated in the 18th century, and its age is an important clue: it shows that although wokeness is a comparatively recent phenomenon, it's an instance of a much older one.
An aggressively performative focus on social justice.In other words, it's people being prigs about social justice. And that's the real problem — the performativeness, not the social justice.
The middle-class student protestors of the New Left rejected the socialist/Marxist left as unhip. They were interested in sexier forms of oppression uncovered by cultural analysis (Marcuse) and abstruse "Theory". Labor politics became stodgy and old-fashioned. This took a couple generations to work through. The woke ideology's conspicuous lack of interest in the working class is the tell-tale sign. Such fragments as are, er, left of the old left are anti-woke, and meanwhile the actual working class shifted to the populist right and gave us Trump. Trump and wokeness are cousins.[2] It helped that the humanities and social sciences also included some of the biggest and easiest undergrad majors. If a political movement had to start with physics students, it could never get off the ground; there would be too few of them, and they wouldn't have the time to spare.
The middle-class origins of wokeness smoothed its way through the institutions because it had no interest in "seizing the means of production" (how quaint such phrases seem now), which would quickly have run up against hard state and corporate power. The fact that wokeness only expressed interest in other kinds of class (race, sex, etc) signalled compromise with existing power: give us power within your system and we'll bestow the resource we control — moral rectitude — upon you. As an ideological stalking horse for gaining control over discourse and institutions, this succeeded where a more ambitious revolutionary program would not have.